Penny Stocks Are Back...

Ross Cameron - Warrior Trading

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Video Summary

Traders are facing a volatile landscape defined by "false breakouts," where stocks rapidly spike on high volume only to suffer dramatic, high-volume reversals. These round-trip patterns, often exacerbated by the mechanics of circuit breaker halts, create extreme risk for those caught on the wrong side of a price swing. The unpredictability of these halts means a stock can resume trading at vastly different prices than where it paused, effectively locking traders out of their positions during critical market moves.

Success in this environment requires understanding the specific "halt bands" dictated by a stock's previous day's closing price. Because these thresholds remain fixed throughout the session, two stocks at the same price can trigger halts at entirely different levels, leading to confusion and potential margin calls for short sellers. While these volatile moves offer significant profit potential for the long side, the declining liquidity during back-to-back halts makes them a high-stakes gamble.

Short Highlights

Circuit breaker halts are determined by a stock's previous day's closing price, creating different rules for stocks at the same current price.
False breakouts occur when high-volume buying is met with a sudden, high-volume rejection, leading to rapid "round trip" price movements.
Trading during halts is inherently risky because an auction process occurs behind the scenes, often resulting in unpredictable resumption prices.
Liquidity typically declines as a stock halts repeatedly, making it difficult to enter or exit positions with significant share size.
The speaker identifies three primary tiers for circuit breaker halt thresholds:
- Stocks closing below $0.75: Halt every $0.15 within five minutes.
- Stocks between $0.75 and $3.00: Halt every 20%.
- Stocks above $3.00: Halt every 10%.

Key Details

Understanding False Breakouts [0:00]

The market recently saw numerous stocks experience "round trips," where they rallied only to return to their starting price.
These false breakouts are characterized by high-volume buying followed by a sudden, high-volume rejection, often forming red shooting star candles.

The problem with a candle like that is that typically it's also on high volume you've got high volume on the move up which is what we like light volume on those first two red candles and then here during the moments when this candle was green it had high volume because people were buying but as it reverses all of a sudden people are bailing out and so now you've got a high volume rejection

The PLAG Volatility Case [1:30]

PLAG demonstrated an extreme pattern of back-to-back circuit breaker halts, moving from $0.60 to over $5.00.
The frequency of these halts was driven by the stock's low prior-day closing price, which triggered tighter halt bands.

The person who came up with the idea circuit breaker halts never envisioned that happening that was not the intended consequence.

Decoding Halt Thresholds [2:30]

Halt bands are fixed based on the previous day's closing price and do not adjust during the trading session.
Stocks priced below $0.75 trigger halts on $0.15 moves, while higher-priced stocks use percentage-based thresholds.

You could actually have a stock you could have two stocks side by side that are both trading at three dollars per share right now and on the first stock they're both at three dollars a share the first stock the prior close was 74 cents and the other one was 76 cents so basically one was just below the cusp right here and one was just above it

The Risk of Resumption [4:20]

During a halt, an auction process occurs that can lead to a gap up or down upon resumption.
Short sellers can be trapped by forced liquidations if a stock resumes significantly higher, triggering margin calls.

There are times where I'm okay with it but on lower price stocks like this it's especially difficult because of how quickly the stock will halted we'll get halted

Preferring Pre-Market Trading [5:30]

The speaker prefers trading in the pre-market or after-hours sessions to avoid the constraints and risks associated with circuit breaker halts.
Declining volume during active trading sessions is often a sign of insufficient liquidity to manage large positions.

I actually prefer trading in the pre-market session when there's no halts and in the after-hour session when there's no halts

Analyzing OFAL Trades [6:30]

OFAL saw significant interest due to its momentum, leading to a successful trade entry on an inverted head and shoulders pattern.
The speaker sized up heavily, resulting in a profitable move before a later rejection turned the trade red.

I was adding into that squeeze I took a bigger position I sized up pretty heavily and we got a nice move we had about seven million shares of volume in two minutes

Trading RMCF Profitably [8:10]

RMCF provided a successful trade by focusing on the front side of the move rather than waiting for a secondary curl.
By identifying strong support levels, the speaker captured $17,000 in profit before the stock topped out.

I noticed the 200 moving average was at about a dollar 70 resistance that's what I sort of thought and so as it came up here to a dollar 70 I was like well it's probably not going to hold