hey what's going on traders thanks for checking out this video my name is Travis
from master the market and in this one we're going to be talking all about bag holders
so i'm going to break down exactly how bad holders are created in the stock market i'm going to show
you exactly what a typical back order chart is going to look like and i'm going to break down
how bad holders in a stock can be affecting the positions that you're buying on any given day
all right so first and foremost in case you don't already know a bag holder is going
to be a stubborn trader that holds on to a losing position in hopes that that losing position is
going to recover and maybe one day they'll be able to sell it for a profit or even just a small loss
so in other words a back order really is someone that kind of breaks rule number one of trading
or investing which is to manage your risk and because of that the obvious way to avoid becoming
a bad border is to simply cut your losses and manage your risk and i do have other videos
on this channel going over how to cut losses manage your risk use stop loss orders to do so
so i'm gonna have those linked down below in the description for you to check out after this video
but with that being said i want to talk about some of the common ways that back orders are created
and the first of those is going to be with large pump and dumps in the market
so pump and dumps create a lot of bad orders in the stock market because they are stocks that go
up very quickly and then come right back down very quickly and what happens when these stocks
go up during this pump phase is that a lot of people are going to see the stock spiking
they're going to see the momentum and the large amount of volume that's coming into the stock
and they're going to just kind of blindly buy into this stock expecting it to continue its spike to
the upside and then inevitably once that momentum slows down they're going to be left with one of
two choices they can either cut their losses on that trade once it starts to come back down
or they can become a bag holder and because there are a ton of inexperienced traders that kind of
cling onto trading these pump and dump stocks their inexperience a lot of times leads them
to hold on to that trade instead of cutting their losses and they end up getting caught in the dump
and now at this point they're holding on to a large loss in the stock and they have
essentially become a bag holder now another very common way that bag holders are created is with
stock offerings or dilution so a company might dilute their shareholders or do a stock offering
in order to raise money for the company in order to continue with their operations
but a lot of times that has a very negative effect on the stock price and more often than not that
negative effect on the stock price is going to happen in a very quick and short period of time
and because of that a lot of people often get stuck in these offerings and end up becoming
a back order in the stock and there's a great example of this here on this chart we can see
that there is clearly an offering done on this day this offering actually happened in extended hours
trading so it really happened between this day and this day that's why it caused this big gap here on
the daily chart but we can see that the price fell from about 54 cents per share down to the next day
a low of 19 cents per share uh so obviously that big sell-off and the price is going to cause a lot
of bad holders in the stock because not everyone is going to cut losses very quickly on this trade
especially being that it happened in extended hours and a lot of traders have a difficult time
trading in pre-market and in after hours trading okay so with all of that being said i just wanted
to very quickly give a few examples of what a classic bag holder stock is going to look like
um so we're over here in my thinkorswim platform with td ameritrade and i'm going to go ahead and
pull up an example here now one very important thing about this is even if you're doing very
short-term trading and you're just scalp trading or day trading whatever it may be um
you know your focus may be on the one-minute chart it may be on the five-minute chart
but it is still very important to kind of look at the bigger picture so i always recommend
traders to zoom out look at the past year look at the past three years even the past five years
um you know on the daily chart or the weekly chart and by doing that it's going to give you a
really good idea of whether or not that is a stock with a bag holder chart um so if we zoom out here
we're looking at the daily chart let's go ahead and take a look at the three year weekly chart
for this stock this is a great example of what a back holder chart is going to look like
we can see that it is consistently trending down making new lows having reverse splits
and then again continuing lower if we zoom in we can see that it kind of consolidates a little bit
after coming down from about 20 dollars per share it's now consolidating at about a dollar per share
and then we get another gap down and it continues its trend to the downside and is now trading at
about 25 cents per share so believe it or not just like that we can already tell that this
is a classic back holder stock and the reason for that is because if you think about it you
know think about how many millions of shares are traded on any given day during this period of time
um actually if we look up here at the top of the chart in this section we can see that it's telling
us the volume for any given day that we hover over uh we have 121 million shares traded on this day
you know up here on this big spike up we have 127 million shares we have
153 million shares and so on and so forth so there's a ton of volume being traded in this
stock so now after this stock has this gap down here you have to kind of think a little
bit about the psychology behind the stock market and realize that everybody that bought within this
period of time at this point is now holding on to a losing position if they didn't already cut
their losses on the trade so because of that those people are now going to be very eager to
sell out of their position if this stock were to spike back up into this one to 150 range
and simply put that is how these bad quarters can have an effect on your stock because these
people looking to now sell into any spike that happens in this stock are going to greatly add to
the supply for this stock so it's going to really prevent it from having any significant upside move
in the near future and most likely immediately once there's a spike it's going to be met with all
of that supply and all of that selling and it's going to immediately kill the stock's momentum
okay so another good example of this is the stock ctrm
um again it's pretty much the exact same situation we have another bag order stock if we look at the
past three years we can see that this is you know a stock that is consistently going to the downside
um it's consistently most likely doing offerings and diluting their shareholders and again just
like the previous example this is going to be a stock that is going to have a very difficult time
getting any significant upside momentum because of all of the people that are back holding this stock
so this example we saw the stock go from about a dollar per share all the way up to nearly twenty
dollars per share in this period of time here during this week there were 188 million shares
traded we have another 63 million shares traded another 56 million shares traded so there's a ton
of volume going on during this big spike up here which means that there are a ton of people down
here that are holding on to a big loss meaning that they're bad holders or they already cut
their losses on the trade so the people that are back orders now we're going to be again very eager
and very ready to sell if there happens to be any big spike in the stock and all of that selling
and all of that supply because of the bag holders is going to really prevent the stock from having
any significant reversal and it's going to prevent it from actually having a strong uptrending chart
alright so that is kind of the idea of you know how bad holders affect the stocks that we trade on
a daily basis uh hopefully you found some value in this video and you learned a thing or two
if you did please make sure to give the video a like and subscribe to the channel and of course
if you want to learn more about day trading swing trading and even long term investing make sure to
check out the master the market programs which will be linked down below in the description
but anyway thank you again for watching i hope you enjoyed and good luck with your trading
you