All posts by Derrick Oldensmith
Derrick Oldensmith Talks Prop Trading on the “Trading Justice” Podcast
Hit the Play Button to Listen to Derrick Oldensmith’s interview on the “Trading Justice” podcast. Derrick discusses: His unique role as a professional prop trader trader, teacher, and mentor Why he started his own trading desk at T3 What makes prop trading different from retail trading The major advantages of prop trading, like access to firm capital Why leverage in prop trading is a double-edged sword The simple math behind successful trading Where people get into trouble in trading Why getting bored as a trader can lead you down a bad road The best way to expand your toolset without taking too much risk Where successful traders go wrong Why you should be a chart reader first and a tape reader second And a whole lot more!
Continue Reading -->Derrick Oldensmith Interview on “2 Bulls In a China Shop Podcast”
Hit the Play Button to Listen to Derrick Oldensmith’s interview on the “2 Bulls In a China Shop Podcast.” Derrick discusses: What it really takes to succeed as a trader Why this is not a glamorous way to make a living How to learn to trade the right way How he combines fundamental and technical analysis Why his professional kickboxing background laid a strong foundation for trading And a whole lot more!
Continue Reading -->Derrick Talks to The Simcast
Derrick recently visited the team at The Simcast to talk about his strategies and mentorship style. He also gives listeners an inside look at what it’s like to start at a prop desk, plus how his background prepared him to become a trader. Check out a recording of the conversation below! Derrick and John will discuss: How the COVID-19 pandemic changed his trading career His first foray into trading as a kid What happened when he graduated college in the middle of the 2008/2009 crisis How he transitioned from sales trading to prop trading The trading lessons he’s learned from kickboxing
Continue Reading -->Meet Derrick Oldensmith
Derrick Oldensmith is a pro trader and head of T3 Trading Group’s trading desk. And in this in-depth interview on the TIB podcast, you can get to know him. Listen in and learn: What working at 7-11 taught Derrick about money and life How he became interested in the stock market Why he left his sales trader job to join T3 What Derrick loves about trading The lessons he learned from the 2008 financial crisis The hard realization he made when he joined T3 Why making money is a pure numbers game Why money management rules are critical to success This is a fascinating look at the ups and downs of professional trading, so jump in and listen. P.S. Give the video a like and comment to help support the TIB podcast!
Continue Reading -->When to Exit a Winner
When your trade is going well, when do you get out? How do you know it’s time to book that profit? The answer depends upon the type of trade that you’re involved in. I categorize trades into two groups: with the trend or against it. Watch the video or read on below. What is a trend? An uptrend is a pattern of higher highs and higher lows, while a downtrend is a pattern of lower highs and lower lows. If a stock or index is in an uptrend and I’m long, I would be with the trend. If that name is trading down and I’m buying it, that would be a counter trend trade. I have a different plan for each trade when it comes to exiting for-profit. One of the key things to remember about trends in the marketplace is they tend to last longer than anyone expects. It’s a great rule to assume that whatever trend you’re looking at will last forever, until it shows you that it’s changing. 1) With the Trend Strategies When taking a trade that is with the trend on the upside, my reward is theoretically unlimited, as the S&P 500 has trended higher over the course of its entire history. When taking a trade that is with the trend on the downside, the maximum possible reward is just 100%, which would mean that stock goes to $0.00. When you’re with the trend, look for continuation chart patterns such as bull flags and bull pennants, with all of your moving averages (short and long term) sloped upward in the same direction as the trend. Trailing your stop when you’re with the trend, based on the pivots of higher highs and higher lows, can help you maximize your reward. 2) Against the Trend Strategies If I’m against the trend, I often exit on the way up. When I’m looking for a retracement higher to certain points, I like to utilize an 8 and 21 EMA (exponential moving average) to show me technical equilibrium for any stock or market that I’m looking at. If I’m going counter trend and I get a bounce back to the space between the 8 and 21 EMA, that’s usually a great spot for me to book the majority of my position for a profit. Then, maybe I’ll hold a smaller percentage of it — 10 to 25% of my original core holding of that counter trend trade — just in case that retracement actually becomes a reversal. Managing the Position with Trailing Stops I don’t always want to completely exit out of a position when it’s going in my favor. Rather I’d want to maximize my reward by implementing a trailing stop system for a percentage of my core position. A trailing stop system will allow me to slowly raise my stop, locking in more profits over time. Eventually, when that trend does change, I’ll get stopped out of the position for a win. Ideally, you want to give the name as much breathing room as possible to maximize reward, but always keep the proper stops in place. That’s how you can get the unlimited reward I’m always telling my team to focus on with their trading!
Continue Reading -->How to Think About Moving Averages
Moving Averages are NOT Support or Resistance One of the most common mistakes I see from people who are getting involved in trading is they think moving averages are support or resistance. This is not true. Moving averages are just averages. They’re little squiggly lines in your chart that are composed of the average of the last however many bars the average calculation is measuring. For example, a 20 simple moving average is the average of the last 20 candles, or 20 periods, on the timeframe in which you are looking at. While these moving averages are not support or resistance, they can be powerful tools if you use them correctly. For my own trading, I look at an 8 and 21 EMA (exponential moving average). I also look at 20, 50, and 200 SMA (simple moving average) particularly on larger timeframes. Equilibrium (8 / 21 Exponential Moving Average) The space between the 8 and 21 EMA on a chart represents what I call technical equilibrium for the marketplace or that individual stock. If a stock or market has moved far away from its 8 / 21 EMA, I would consider it to be extended from equilibrium. Understanding extension in markets is really important for evaluating risk and proper entry / exit spots. If I’m buying a stock that’s extended, I’m going to have a worse risk-reward and a lower probability of success on the trade. Pivot Points with Equilibrium (Higher Highs & Higher Lows) I also utilize the 8 / 21 EMA to gauge where a stock might create a higher low. For example, a new pivot point to continue a trend. When looking at an extended stock I think, “alright, the stock here is extended because a lot of momentum came in. I should be patient. Maybe a bull flag comes in, which would be more of a time correction that allows those moving averages to catch up.” Once the moving averages have caught up to price, a trade in that name may have a better risk-reward and higher probability of success. SMA (Simple Moving Average) The simple moving averages I like are the 20, 50 and 200 SMA. I use them on larger time frame charts, such as daily and weekly charts. For me, the most important part about the SMAs is the slope of the moving averages. Are they pointed higher, sideways, or lower? Are they crossing over each other? Or are they all telling me the exact same story, such as a rising 20 SMA above a rising 50 SMA above a rising 200 SMA? The simple moving averages tell me the essence of the trend for that timeframe. There are about 20 trading days in a typical month. If I’m looking at a 20 SMA on a daily chart, the direction of the slope of that moving average tells me the nature of the trend over the course of that last month. The 50 SMA measures about the length of a quarter. I call it my intermediate time frame when looking at a daily chart. The 200 SMA measures around a year. This is a really important moving average. It represents the long term essence of the trend for any stock or market. Putting It All Together If I’m looking at a rising 200 SMA, above a rising 50 SMA, above a rising 20 SMA, I know the essence of trend for every time frame is the same. All are trending higher. Generally, if I’m going long an uptrending stock or market, I’ll have a higher probability of success than if I’m going long a stock trending downward or sideways. Again, the key with these moving averages that people need to understand is they are not support and resistance levels. They are tools to help identify trends on different timeframes. If you can learn to utilize moving averages, they can be very powerful for your trading. They can help you understand risk, reward, and probability of success for any trades you take.
Continue Reading -->What is a Short Squeeze?
A short squeeze is forced buying from short sellers who are already in the marketplace. A short seller is someone who is trying to profit from a stock going down. When buying a stock, the worst thing that can ever happen is that you lose 100%… but in short selling, you have unlimited risk. Stock can go up hundreds or thousands of percentage points – especially if the stock is getting squeezed by forced buying from short sellers. The GameStop Squeeze Short squeezes became in fashion earlier this year in January, with the WallStreetBets Community focusing first on GameStop. GameStop had a short float, a short interest of 140% of the outstanding shares. Due to naked short selling, hedge funds were shorting the stock on the stock without even borrowing it. When the WallStreetBets community recognized that, they all started buying. Their buying caused the stock to go up, resulting in some of the shorts starting to get squeezed. When that happens, you get a virtuous cycle of buying. That’s how we were able to see GameStop go from the price of about $20 to $500 in a matter of days. Other Notable Short Squeezes We also saw short squeezes come into a lot of other stocks – $AMC $SNDL $BBBY $BB. There’s been a constant rotation of these mini short squeezes we’ve been seeing. GameStop itself has had three major squeezes, AMC had two major squeezes. My team and I now are paying attention to stocks that have high short floats. Anything with a short float above 20% is in squeeze territory. Some of those layers of probability also apply. If we’re seeing the heavy volume along with momentum coming in, that could be the beginning of a squeeze. Risks in Short Squeezes Being too late A lot of these companies are not necessarily the best companies out there, fundamentally speaking, and it’s probably why they had really large short interests. Once the forced buying is done, there’s a real risk that the stock can go right back down to its more fair, fundamental value. We want to make sure to get in on the ground floor of that squeeze – getting involved early – before it’s gone up a couple hundred percentage points, and when the technical setup was still there. If not, you risk buying in too late at too high a price and losing the very next day. Secondaries (Capital Raises) An IPO, initial public offering, is when a company’s shares first become available to the public. They can always add on more shares to that IPO by doing a secondary. A secondary offering is when a company decides to utilize their stock price to raise additional funds for the company’s operation by offering out additional stock. Now, let’s think about what secondary offerings mean from the perspective of supply and demand. Demand is coming into the stock, and some of that demand might be from the short squeeze. You also have a limited number of stock supply, which is what we call the stock’s float. Now, when you do a secondary offering, the overall stock float will increase. If you’ve got the same amount of demand, and all of a sudden, you’ve got much larger supply because the float is increased, that stock will most likely go down. AMC’s Secondary Offering That is exactly what happened to AMC. Many people don’t realize that a secondary offering actually caused the top of AMC. AMC had that crazy short squeeze on June 2. It was actually the second short squeeze in the name. In one day, it went from about $35 to $70+. Then they announced a secondary offering the next morning, and the stock went all the way back down to $38. Something to keep in mind regarding a lot of these companies…why were they so heavily shorted to begin with? They’re usually strapped for cash, don’t have strong balance sheets, and possibly even lose money year over year.
Continue Reading -->Probability in the Stock Market
Finding the risk/reward probability of a trade is simple math. But most people don’t talk about the other side of the formula: probability of success. Probability is very dynamic and not as straightforward as risk/reward. In this video, Derrick will walk you through what he calls the seven “layers of probability” – all of the factors that will increase the probability of a successful trade. Get all of these layers in order and you can improve your chances of success.
Continue Reading -->5 Things You Should Know Before You Trade
If you’re just getting started in the trading business, it can all feel overwhelming. There’s a lot to learn, and much of it comes with time and experience. But Derrick Oldensmith has a few tips that he’s discovered over his more than 10 years of trading. Check out the video below to learn the 5 things you should know before you start trading and use Derrick’s experience to your advantage.
Continue Reading -->Bad News vs. Strong Technicals
In this special training session, professional prop trader Derrick Oldensmith shares: Where the market could go from here Why the market is ignoring bad news What is keeping stocks so strong How he identifies a powerful market trend
Continue Reading -->