Global bank crises don’t come around that often, but when they do, they’re sure to shake the markets — and day traders’ nerves. Here’s how successful day trader Ross Cameron approached the Silicon Valley Bank fiasco and what lessons he has for dealing with stocks in crisis situations.
Early in the morning of Friday, March 10, news broke that Silicon Valley Bank — the darling of Silicon Valley startups, entrepreneurs, and investors — might not be able to meet customer withdrawal requests. It was big news in the financial services sector and all eyes were on SVB Financial Group, the bank’s publicly traded bank holding company, which was still trading after the news came out.
Things were going to get worse — much worse — for SVB. Next came a run on the bank as depositors scrambled to withdraw their money. Within hours, federal regulators had taken over and California’s banking regulators put it into receivership under the Federal Deposit Insurance Corp. But in the interim, there could’ve been an incredibly lucrative trade.
For Warrior Trading’s Ross Cameron — one of the most successful day traders of this generation — the SVB debacle proved to be a good lesson in technical analysis versus gut feel.
“There’s discipline and strategy, and then there’s your gut — your instinct,” said Warrior Trading’s Cameron. “When I started watching SVB, it was down around 65% to 75%. It was trading premarket at about $33.40 a share and looked like, from a strategy standpoint, a reversal setup — where the idea is to find the stock’s lowest position on a downward trend, set a position and watch it climb.”
Sounds Easy, but Isn’t
Reversals are easy in theory but difficult in practice — and harder still to execute perfectly. One common scenario — which could’ve happened to SVB — was that the stock falls on bad news, but then rises quickly when news comes of positive intervention from an outside party.
“The morning of the SVB collapse, I thought this could be one of these companies where someone like Warren Buffett or Carl Icahn comes in and says, ‘Hey, guys, I’ve just put up a billion dollars to invest in SVB, because I believe they’re going to turn around,’” said Cameron, explaining that if such an announcement had been made, the famous investor would bring with them a wave of new confidence: “If that had happened, we would’ve seen a big rally on SVB.”
Ross Cameron was thinking back to the debt-ceiling crisis in 2011, when Buffett gave Bank of America a $5 billion lifeline — a play that turned out to be one of the most lucrative of Buffett’s life.
“These kinds of things happen from time to time, and they’re perfect for a reversal strategy,” said Warrior Trading’s Cameron. “I was thinking about that a little bit, and I saw some people bragging that they were going to buy SVB long and take a reversal trade. These folks were sure SVB was going to bounce back up.”
And at one point during the day, SVB did indeed bounce from the premarket low of $33.40 up to around $39.
“When I saw that, I felt like I’d missed the trade,” Cameron admitted.
He wondered if he had missed the trade for some unfounded bias he had on the stock.
“How I felt about the stock wasn’t what the charts were saying. My gut was telling me to stay away, while from a technical perspective, there was a chart pattern in play — a reversal pattern,” said Cameron.
Role Reversal for Warrior Trading’s Cameron
For a reversal, Cameron usually first watches the stock price for at least five consecutive red candlesticks. On a stock price chart, a red bar — called a candlestick — indicates that the closing price of the stock is below both the price it opened at, and the price at which it previously closed. Next, when he sees the first green candlestick — which means the stock has reached a new high — he buys.
“There can be great risk/reward ratios on these types of trades, and if you’re right about the charts, you can make a killing. But sometimes a pattern is just a pattern — and it’s meaningless,” said Cameron of the conundrum he was facing with SVB that day.
For Ross Cameron, it was a classic day trader’s puzzle: The charts were telling him SVB was prime for a classic reversal. But his gut was making him hesitate.
“Day traders need to stick to their trading strategy — their set of rules that guide how and when they’re going to trade, and when they’re not,” Warrior Trading’s Cameron explained. “For me, one of my golden rules is that I don’t take reversals on stocks that have the risk of bankruptcy or being halted, pending news. I said to myself, there’s a problem with Silicon Valley Bank. While the chart looks like it could be great for a bounce, I’m not someone that’s very well connected in the financial world who knows the true resilience of this company, and whether the stock could get halted or bought out.”
Gut Feel Is Ross Cameron’s Check on His Technical Analysis
In the end — contrary to what the charts were telling him — Cameron decided the risk was too high.
“I decided not to trade it,” said Cameron.
Moments later, the stock halted at $39.40.
“It was reaffirming to me that I’d made the right move,” Cameron recalled. “I followed my gut, not the charts.”
But while some people think gut feel is some foggy, unexplainable instinct, for Cameron it is educated intuition that only comes with time and experience. Gut feel is not a substitute for a well-thought-out trading plan and good technical analysis. Instead, it is a valuable check on your strategy and analytics.
“Sometimes I’ll hesitate before I execute a well-planned trade,” Cameron explains. “I’ll see a setup, but I’m hesitating. So, I ask myself why I am hesitating. Because usually when I see the right setup, I don’t hesitate—I’ll strike immediately.”
Warrior Trading’s Cameron says that in these situations, his hesitation is his subconscious giving him pause.
“I may not know exactly what it is, but all of the experience I’ve had gives me a little bit of an edge,” said Cameron. “And when the heat of the moment passes, if I go back and analyze the trade idea, I can often trace that hesitation to something I didn’t initially see.”
The lesson? A solid trading plan is essential. But don’t over-rely on your charts. If your gut is causing you to hesitate, there could be a very valid reason. You just need to find it.