Episode 212 … Kristjan Kullamägi (76:09)
Swede in his early thirties
Started investing 2010
Started trading 2011
Full time from the beginning
Focused 100% on trading, dropped out of college, didn't finish degree
Worked as a security guard part time while studying ("mall cop")
Started with $5,000
Doubled his paper trading account in two weeks in May 2011 and was sure he'd get rich by that fall
Lost it all
Saved money for six months, tried again and again
Blew up three or four times in first couple of years
Blew up with $3,000 or $4,000 accounts several times
Horrible experience to lose three years of savings when he was 21 years old
But every time he blew up, he'd learn something new
Started day trading but had no method, just went all-in on every trade
Never bothered with Swedish market, no action, traded US market from the get-go
Became profitable in 2013, two years after started trading
Big moves take weeks and months and years to play out
It's hard to catch a 50% to 100% move while day trading
Learned about swing trading, gravitated to it
In day trading, you're fighting near your entry all the time
In swing trading, the stock can quickly move above your stop and stay above it for a very long time
Realized swing trading more scale-able than day trading
Liquidity and slippage a major problem when day trading microcaps and small caps, it's not scale-able
Took a couple years to go from 95% day trading to 95% swing trading, wasn't overnight
Control your risk through position sizing in swing trading
Day trading more hazardous than swing trading, he believes
Made his first million day trading, but everything after that has been swing trading
In his first few years while losing money he was constantly depressed, "scarred for life"
Felt unreal when he first started making money
Realized if he could find patterns for swing trading like he had for day trading, he could scale up
Day trading is a lot of effort, he was getting tired of sitting in front of computer from open to close
He says he's a lazy person, doesn't want to work too hard
Got swing setup ideas from stockbee and read William O'Neill's How To Make Money in Stocks in 2015
Went through every single stock in US market and found all stocks that conformed to the pattern
Just a breakout setup and variations of the setup he'd stumbled upon
Built database by taking screenshots and saving them in Evernote of what the setup looks like
It's all about pattern recognition, but he also looks at fundamentals
Look for a breakout on the daily time frame
Stocks move like stairsteps
Leg higher, sideways, volatility contracts, range gets tighter, next leg higher, volatility contracts, range gets tighter, next leg higher, etc.
Uses 10 and 20 day moving averages to trail a stop
stockbee taught him that stocks move in momentum bursts
The stronger the stocks, the better ... mid caps, large caps
By strong he doesn't mean microcap pumps that move 100% in a day
Look at the perfect stair step patterns in Tesla or Nio
You want to be in the fast moving stocks
Wants to hold stocks for as long as possible
Sells 20-25% of position into first burst of the move, then it becomes "stress-free," no large loss possible
When his account was smaller he did trade small caps and mid caps but now he's forced to trade large caps
$150 million average daily dollar volume is now the cutoff for scans, two years ago his cutoff was $20 million
Scans for biggest movers (strongest 2%) over the 1-, 3-, 6-, 12-, and 18-month time frames
Wants a list of the strongest, most liquid stocks
Looking for linearity, how orderly is the pullback following the burst higher
After a burst, stocks pull back to 10 and 20 day moving averages, how do they act there?
If you trade random setups, your results are going to be random
Look for the relative strength winners, the stocks that hold up the best when the broad market declines
Leading stocks are the stocks that go up the most and are the most liquid
Leading stock don't go down when the broad market goes down
You need an uptrending broad market for this method to work
Fundamentals drive stocks at the end of the day -- big earnings and revenue growth
If you know the story behind the stock, and understand the fundamentals, it gives you more conviction
He enters everything at once, very aggressive, responsible for many "big wicks"
He scales out, sells some into strength and trails the rest using the 10 or 20 day moving average
He buys above the opening range high, first one minute, first five minute, or first sixty minute candle
Always uses the low of the respective one minute, five minute, or sixty minute candle low for his initial stop [edit: or the low of day, whichever is lower]
His win rate last year was 35% (2020), year before was 25% (2019)
You have to get used to getting stopped out a lot using this method
He often buys, gets stopped out, then buys once again minutes later
He stops out without hesitation
Once the ten day moving average catches up to his initial stop, then he begins trailing using the ten day
He ignores intraday violations of the moving average, he only gets out on a close below the moving average
In addition to his trailing stop, he has a hard "crash" stop in place [my term for it]
He doesn't add to winning positions
Treats adds to an existing trade as a new trade
Strong stocks should hold up well during broad market declines
Understanding trend and sentiment of the broad market are important
Every time he gets 30 positions on, it marks a top (a proprietary indicator, he laughs)
Swing trading is a low effort affair once you learn what to look for
Doesn't know his average win versus average loss, doesn't sweat the small stuff
It's all about small losses and big winners
Most of his money comes from a few big winners ... maybe 20% of his trades are home runs, the rest break even
He's addicted to trading, controlling himself is difficult, tends to over trade
Many times he'll think something can't go higher and he just sells it, violating his trailing stop rule
Every time he overrides or outsmarts his rules about trailing a stop, he screws himself, but he keeps doing it
He has no problem taking a loss, this is not something he struggles with
His position sizes and percentage risk never change, it's all relative to his account size
He uses margin "quite a bit" ... but you have to "deserve the risk"
He was reckless in the beginning, went "all-in" all the time, doesn't do that now
People focus on the wrong things, lots of indicators instead of the price, just focus on price
People mistakenly focus on other people's opinions
Tune it all out, tune everyone out, just focus on the market and what the leading stocks are doing
Go back and look at thousands of examples of the setups you trade, study what the broad market was doing then
People master their setup but they haven't been able to scale their trading, still trading the same size for ten years
Your size and risk should double as your account doubles
Talking about points or dollar profits is meaningless, think in percentage risk and return instead
He read all the Dan Zanger letters going back as far as he could back, studied obsessively in 2015
His life hasn't changed much since he has made tens of millions of dollars
Now he plays video games on his days off, doesn't study much anymore
Politely and humbly thanks the host, Aaron, for the invitation to the show
Twitter: @Qullamaggie
Blog: Charts and Stories
Twitch: Qullamaggie
YouTube: Qullamaggie
