Churning and Chatting #3: Crash–The $50 Million Short Seller Who Takes Pain

So when I asked a bunch of people online for their trading stories, I had an anon account, Crash, tell me he’d made $50 million trading in profits since 2020. He was in NYC for a week and willing to meet me in person. I wasn’t sure what to expect, but he pulled up his results on his phone and verified it all in front of me. We sat there for a couple hours, swapping trading stories and having a laugh. He seemed to know ‘everyone’ in our little day trading circle. I found it strangely heart warming that he seemed to dislike all the traders that I also disliked.¹

Crash is a native Midwesterner who moved out to Puerto Rico, presumably for tax reasons. Crash knows all the traders out there. They’re pretty much all the same–trading-obsessed insatiable fuckers trying to compound their way to a 9 figure net worth on rookie mode.².

A contemplative Crash would look me dead in the eye and ask “how do you stop yourself from just going and going until you’re all-in with way too much risk???” As if there’s some supernatural, malevolent force holding the puppet strings, forcing him to trade with more size until he was at the point of physical and mental breakdown.

I told him my problem was usually the opposite—not taking enough risk. He clearly leaned further toward risk-seeking than most traders I’d met.

Starting Out

PETE: How’d you get into the stock market?

CRASH: During college, I went through that aimless ‘what am I going to do with my life?’ phase. I was a college athlete, but I knew going pro wasn’t in the cards. My only real jobs were valet and sports coach. I remember starting to become financially aware for the first time just through watching CNBC with my dad. I liked the aspect of collecting quick money as if it were a video game.

PETE: What were some of firsts in the market? First book, first trader you ever heard of, first stock?

CRASH: The first book was from Bill O’Neill’s How to Make Money in Stocks. First trader I ever heard of was a guy named Kyle Dennis who specialized in biotech stocks. I later learned he wasn’t the most ethical guru to learn from and he later got charged for $40 million by the FTC. First stock was a small cap called TRXC–TransEnterix, which did robotic surgery. A friend got me into that with the idea they had this amazing surgical technology but it never panned out³.

PETE: Tell me about your initial forays in day trading.

CRASH: I dabbled through 2018 and 2019, following a bunch of traders on social media and trying all kinds of random strategies–copy trading gurus, trading my opinions, trading news, trend trading off scanners. None of stuck. In 2020, I made about $3,000 shorting COVID mask stocks like APT and LAKE. That was when I started finding my niche in small caps with mean reversion trading. Reading about elite short sellers like Phil Goedeker and Michail Shadkin helped steer me down that path.⁴

PETE: I see you’re a 57-licensed trader, tell me about your prop trading experience.

CRASH: I learned about (redacted firm) through social media. They portrayed themselves as a tight-knit group, passionate about trading and teaching others. My aim was to be around a high quality group of traders who I could learn from, so I took the exam and joined one of their branches. It was immediately a negative experience in every aspect. First, I found them extremely unprofessional and just outright deceptive about what they promised me. We agreed on a 60-40 split but then during live trading, they say “oh it’s really more like 50-50 until you meet these (previously undiscussed) benchmarks”.

They also gave me trainers who kept me on a tight leash, always telling me what not to do–like not trading the first five minutes of the open. I chafed under that rigid style and I eventually tuned them out.

Then the final straw was when I wanted to short stocks but couldn’t get any locates on the best plays. I found out they always locked up first priority for one of their star traders. I left within three months. Later on, I signed up with Mosaic Trading. I didn’t join a desk nor did they train me, it just became one of many accounts but with more leverage.

PETE: Why did shorting fit you?

CRASH: There’s a cynical, skeptical part of me that likes to hammer a piece-of-shit stock when it’s at the wrong price. I see forced buyers getting squeezed and naive buyers getting caught up in temporary euphoria. I know there are some scalpers at the very top playing pure momentum and they will sell just as quickly. That’s the psychology I understand, and that’s the edge I want to exploit. It just feels more natural to me.

PETE: There are so many different approaches on shorting parabolic moves versus when I started. Tell me about how you approach it.

CRASH: In the beginning, I used to look at filings a lot. However, all that really did was feed into my initial bias and it led to large losses. I’d hang onto thinking “it’s such a piece of shit, it has to come back.” But some of the biggest PoS stocks are the ones that squeeze the most–there’s no edge in knowing that the fundamentals are bad. Everyone knows. So now I’m more focused on charts and sentiment than fundamentals. I still look at fine details like death spiral financing but it’s only a small piece of the puzzle.

For the most extreme parabolic contexts, I have a good idea of when it’s getting close to unsustainable. Being a little early is actually ok and sharpens my sense of knowing when maximum pain/fear has been reached. I consider myself more of a position trader rather than a hyper-quick timing trader. Timing for me is about being within a day or two, not being the dead top of a 1min candle. Speed has never been my edge. My edge is sitting until it’s finally past the turning point and holding for the backside move.

PETE: What do your best stocks look like?

CRASH: Most of my money comes from the A+ short setups where the higher, the better. I’ve been looking more at bigger, liquid names—large caps over $10 billion in market cap with plenty of volume like CAR, CRCL, MSTR, SMCI. It’s easier to take shots and absorb some pain when there’s liquidity.

The best discretionary traders seem to have a simple study method: obsessively go through the charts of their favorite setups to build conviction… just like the Dark Lord.

CAR: Anatomy of a Parabolic Short

PETE: Walk me through a trade breakdown on CAR.

CRASH: It was a tricky trade. With the float, the crowdedness, and the type of company, it was very easy to be early. I’m usually early on these anyway, but CAR especially spooked me because the price action was so thin and I remembered that insane outlier move in 2021.

I told myself I wanted to wait for a big speedup or a gap day before getting heavily involved. There’s no reason to fight the steady grind higher. I’d rather wait for the acceleration, even if it means missing the trade entirely. The previous trades in SMCI, MSTR, and CRCL had prepared me well as they all shared similarities.

PETE: What are the inflection points you look for? Why start your position on 4/21 vs. the other days?

CRASH: It was the combination of the gap, the volume, the extension, and the change in price action that made this day different. I was thinking “I can’t NOT be short” at this point.

On the extension: It was the first day with a really significant gap up, which was something I’d specifically been waiting for. We were extremely extended from basically every moving average and VWAP. The opening five-minute volume was much higher than on previous days, and by the close, the daily volume bar looked like potential capitulation.

On the sentiment: Sentiment was getting completely ridiculous, which is exactly what I want to see. Ideally, you want to see the bears completely giving up on the trade. Throwing in the towel, capitulating, puking. On the other side, you want to see bulls getting arrogant, thinking “this time it’s different!” CAR was a perfect example with the Pentwater squeeze narrative. The idea that the float was locked up and the stock would never go down ever again was exactly the kind of nonsense you want to see. Ideally, the entire X timeline is talking about the stock. Even guys who don’t normally trade equities. When literally everyone is talking about the same name, we’re usually getting pretty close to a top or at least a major inflection point. It’s caught the max number of participants and eyeballs.

On the timing: So–I try to get the timing down to a day or two. “If not today, then has to be tomorrow”–that was probably my biggest thought throughout the day. My assessment was there would be a decent chance we’d break down in the afterhours so I wanted a core position on. It did close strong and I was prepared for a controlled drawdown the next day. I thought even $1000 was possible but I had dry powder to spare for that point. My approach is to get close to the big moment and scale in. Get exposure to it. Trying to time the exact top on a tighter timeframe is just not my game, it wouldn’t be playing to my strengths. Better to zoom out and give it more room, scale in.

I ended up making just over $3 million.

PETE: How did you feel holding a decently-sized position that was closing strong, knowing you might need another 200 points of room the next day?

CRASH: I’ve become comfortable with drawdowns when I love the trade. I see a chart like CAR and I know I would take the same bet 100 times out of 100. Of course I am a little nervous to see the red PnL but I remind myself I am still within my plan. I honestly think it’s a cardinal sin for any trader not to be sized into rare opportunities like these. It’s just a rental car company up on a short-term artificial move, there’s no way it’s going to hold up.

PETE: So, here’s the chart you gave me. How do you feel you executed on your plan?

CRASH: I actually went full size on the first day of entries as it was still holding and it scared me a bit, to the point where I cancelled some higher offers I had in the $900-1000 range. I still had the room to add but decided caution was better. Then it just went straight down the next day and my first move⁵ was actually to downsize. Then as it kept going and proving weakness, I added back on to same risk.

It didn’t get there anyway but I shouldn’t have cancelled those higher offers. I think when you pre-plan entries the way I do, you commit to it. And I need to reduce how much I cover early, which was out of a desire for comfort.

PETE: Do you try to add more when it goes down?

CRASH: I think because I was on my backfoot a little by downsizing and then chasing back in, my mindset wasn’t in the right place to be doubling/tripling down into the backside. I should be doing that. I think that will take my trading to the next level.

PETE: Do you have any targets for the trade?

CRASH: I don’t really have a systematic exit using trails, I am a bit feel-based with my profit exits. On this particular trade, I was thinking -50% downside was absolutely possible within a day. That kind of begs the question why I’m downsizing before that on the first red day–and I absolutely shouldn’t have. Again, it goes back to finding that first feeling of comfort after holding huge size.

The unwind ended up being absolutely epic. I’ve almost never seen an hourly chart look like that in terms of distribution, and I could have exploited it much better. I spent so much time thinking about where the stock would peak that I didn’t take full advantage of the move afterward.

Crash Crashes Out on OCTO

PETE: I like to show the good and the bad, what’s your worst trade ever?

CRASH: This was around the time a lot of companies were releasing crypto treasury PRs–“hey I know we sold lemonade yesterday but today we’re just buying crypto.” Most of them faded and I traded them very well, was on a bit of a heater for a week. OCTO was another low-float crypto treasury name—a total joke of a catalyst and also a company I’ve shorted many times before without ever losing.

But I also want to go over some psychological factors–where, looking back on it–did not have me in the right state of mind to let trades come to me and not force it.

First, I had been at a trading event that weekend, and the talk of the town was another great trader who had been up huge on the year. I’m a competitive guy so this had me thinking “Why am I not at that level? I have to step up.” That alone has me ready to sling heat before the Monday open.

Second, my routine was completely off. I was hungover and tired and not trading at my normal home setup. I had another flight scheduled at 4pm that day as well and for whatever reason, I just do dumb shit before I travel. Anyway.

Sometimes the biggest risk isn’t in the market, it’s just within ourselves.

PETE: How did the trade start out?

CRASH:

8:15 AM— A Harmless Pre-Market Scalp

I get to the screens later than usual and immediately noticed the easy fades, on other stocks, that I’d missed between 4–7 AM. This added an element of FOMO to the morning on top of everything else.

Within two minutes of sitting down, I get short OCTO. The PR seemed dumb, the stock was 25–30% above VWAP, and a few other signals suggested a quick fade. I entered looking to catch a buck or two.

Normally, I start in one or two accounts and leave room to add across all four. Using all four means a substantial move or huge conviction. This time, the stock went against me a few cents and I immediately added across every account. Just like that, I had 40,000 shares.

Let’s catch a forty-grand scalp at 8 AM to start my week. What could go wrong?

I hadn’t even thought about a stop level. OCTO went sideways through the rest of premarket, and I sat there instead of sizing down. When it started to take off into the opening bell, I added again, convinced that was the blowoff.

9:30–10:15 AM — “I Can Trade My Way Out”

OCTO peaks at $20 on open then there’s a red candle and a halt down. Okay, that was the extension. Get some adds on for the reversion and I’ll be fine. It’s 100% above VWAP. It will pull back.

10am, it re-opens, holds up and slingshots into the next leg almost immediately. Peaks in the $40-50s range. I see friends in my trading circle puking out.

To me, it looked like a textbook exhaustion top. I was thinking, Buncha pussies. I’m adding and this will be a huge winner.

At this point, my average was something like $9. I always hide my P&L, and I’m not particularly good at math, so I had no idea how much I was down. I think my brain knew it was so bad that it wouldn’t let me calculate it.

Besides, I was convinced I’d get out. How often does a stock run 1,800% in two hours? It would fade by the close. It was OCTO, after all.

I added more size than I’d ever held in a small cap. My average was so bad that I felt I had no choice but to get it up. I was in complete YOLO mode—something I’d never experienced before or since.

11:00 AM — Refusing to Look

OCTO held in the $40s and $50s, and I started getting angry. How could it barely pull back after the mother of all opening moves? I wandered around the office, avoiding the screens and the reality of what was happening.

Fuck it. Worst case, we get a clearout and fade. Best case, we just fade clean. So I added again for the late-day fade.

My P&L was still hidden, but the PnL warning alerts gave me a rough idea of the damage. I knew if I was really wrong this time, it was going to hurt. So I started placing stops way above the market. I tried to steel my mentality against that possibility.

I can afford a big loss. Fuck it.

The dumbest thought in the world. An absolutely toxic mindset.

11:30 AM–Noon — “Just Don’t Die”

The price action is flattening but not sticking lower. For the first time, I thought, Okay, I’m actually smoked here. This thing isn’t dying.

When I see the price action is clearly not what needs to happen, fear and doubt start to creep in. What if it broke again and squeezed to $100? Any number seems possible now. I started panicking and trying to estimate the loss across my accounts. I also had a flight in a few hours. I had these two voices in my head telling me what to do.

I was frozen and mentally exhausted, trying to understand how I’d ended up here. I decided to give it room and placed some staggered hard stops–some a few points above the prior high of the day and the rest in the $70s, thinking there was no way we’d get there.

Within minutes, it broke old highs. Half my position stopped out, then the stock halted for a gap down. I felt like I’d printed the top myself, but I was also relieved to have half off. I briefly considered putting it all back on, then shut that thought down.

12:30 PM — The Final Exit

Turns out it wasn’t just a stop clearout and the stock really had legs for more. With my remaining stops about to trigger, I went to cancel them and pay through the market myself in the $70s. Then I finally looked at my P&L across all my accounts to add up the loss.

PETE: How did you feel after you were out?

CRASH: Just a lot of things in my mind. First I felt relief. Then I felt impressed that a ticker could run 4,000% in a day. Then I felt pissed at myself beyond belief for letting that happen. One thought kept coming back: I just set myself WAY back. Time to trade for free for a month.

I was stuck in this dream state for a bit where the pain of loss hadn’t kicked in yet. During that “trance”, part of me felt like I’d leveled up. After previous big losses, I would be a mess for the rest of the day. Yet somehow in the moment, I was able to cope with it. To be able to feel OKAY after all that felt like a flex.

Here’s the actual execution chart of Crash’s OCTO loss:

More on Crash:

PETE: You seem to be able to tolerate incredible pain. What are your thoughts on that?

CRASH: I am really only taking “serious pain” on under 5-10% of my trades. Those are the trades where I can gear up for size and have strong conviction–the CAR, SMCI MSTR, A+ parabolics. I will do it when the situation calls for it. I think it’s the most optimal way to trade certain market instruments over the long run, so I just try to remind myself of that and keep a Birds Eye view. If there are certain things that other market participants aren’t willing to do/can’t do, but I can do them, isn’t that an edge?

For some lesser grade trades like in micro-caps, I will take some pain too but trade out of it. Like I’ll get stuck in an entry far lower, but I can wait it out and double down into a parabolic acceleration, cover and get out for less damage or a small gain. I’m not sure that’s a great habit for me but I will say this: there is no pain greater in the world than getting chopped up on a stock–like getting in and out, trying to time it perfectly with tight stops. Knowing that, I’d rather sit in something with a bit of a bigger picture outlook. But ideally something just works in my favor quickly and I don’t get to that point. Those profits will add up.

I always think about the mean reversion trader’s dilemma: the further a parabolic move extends, the more likely it will correct and thus the worse it feels to exit—and the more tempting it becomes to add. But you still have to stay within your risk parameters. Traders who absorb that volatility by giving positions a lot of room often end up with loose risk guidelines.

I struggle with this myself. I’ve always relied more on intraday timing than time in the market to catch parabolic corrections. The tradeoff is getting whipsawed out of positions, entering and exiting the same stock repeatedly, and draining my mental capital constantly trying to read strength and weakness. That’s the pain I accept with a price- and timing-sensitive approach—and the pain Crash avoids by giving his trades more time and room. He doesn’t overthink it.

PETE: How did you develop this pain tolerance, sitting on a loss but still being able to properly wait for the next “correct” move without panicking?

CRASH: I wasn’t always comfortable doing that. In my first few years, I physically couldn’t add to a loser and rarely let trades get away from me. I developed that pain tolerance slowly. At my most aggressive, I found that sticking with the plan often worked best. Stopping out near the highs, only to watch a stock fall 50% over the next few days, was brutal. Most of these names eventually go back where they came from, and sometimes holding through the pain is the positive-EV decision.

The skill I’m still working on is knowing what can hurt you a bit and knowing what can really demolish you. That will keep me trading my most optimal way without running into more OCTO-type situations.

PETE: Tell me about some non-mean reversions in your playbook?

CRASH: My biggest long win was a breakout in DELL that I rode. But I think I got lucky in that one with a Trump tweet after being red for a bit on initial entries. In general, I’m not sure if swing trading or going long is really a strength of mine.

PETE: Why do you say that?

CRASH: I tried it at Mosaic and underperformed for months. I was impatient and gave up on ideas too early. I didn’t have a good read on context or quality, and I didn’t have conviction. It was uncommitted, skittish trading. I’d get out on an adverse move and then the breakout would resume. Three hours versus three months—I have my timeframe, and weeks or months wasn’t it. Around the April lows, I remember losing about $50,000 on a SPY gap down. That was my moment to just fold up that strategy and get back to my strengths.

PETE: How do you feel about getting long on small caps/low floats?

CRASH: I have tried from time to time. My stats are bad, and I get angry at myself for buying them. Then it spills into my short strategy and it eats up mental capital. I’m pissed that I’m down $25k long on a stock that I absolutely should be preparing to short to make $100k. I’ve mostly abandoned the long side, although I still do it occasionally for smaller size.

PETE: People keep saying that shorting is getting harder. Agree/Disagree?

CRASH: Every year it gets harder and I’m not the only one out here who agrees⁶. First, locate costs have gone up a lot more. Brokers have tightened up how they handle locates–I think there was some shady stuff happening where brokers were improperly securing locates and sending it out for cheap to get more clients. That kind of activity is getting locked down so prices go up. This is a big reason why I have 5 accounts–I need to make sure I have locate choices at economical prices.

Second, you have these weird moves that used to not exist. You have stocks where you just flat out cannot get out within reason–these so-called “teleporter stocks” that halt, gap up, halt, gap down, halt. I honestly believe if you’re in this low float short game, you just have to accept a few of them will happen to you in any given year.

Around the time of this interview, we’d just seen some wonky shit in low-float names SXTC and BIYA. Both ripped multiple times higher early in premarket, even after seemingly cooling off from the prior day’s move. Then trades got busted across seemingly arbitrary time windows, adding another layer of uncertainty. It’s hard to define your risk when you don’t even know which trades will count.

PETE: Have you mentored any other traders?

CRASH: I was introduced to another trader through Mosaic and mentored him for a bit. Not sure I was very good at it. Sometimes I felt like I couldn’t explain what I was seeing. Some people just don’t see things the same way. I was obsessed with trading, and I didn’t get the same sense from him. Are you checking quotes first thing in the morning, or are you dicking around?

Personality matters, too. My style requires the aggression to get involved when a stock is extended, then the willingness to take pain while waiting for the turn. That comes naturally to me—it fits the type of trader I am. I think it can be hard for someone else to adopt that style if it doesn’t fit their personality. But maybe I’m just shit at explaining things. I’m not sure.

PETE: What’s your long-term outlook on trading?

CRASH: I’m 28, and trading has consumed my life. I went five years without taking a vacation day, and it’s taken a toll on my personal life and my health. I don’t want to wake up at 40 with no family and nothing besides money. I ask myself “do I really want to spend the rest of my life playing this game?” It’s a great rush to win, but it’s not particularly fulfilling when it wears off. So I’m thinking of slowing down.

PETE: What are you trying to change now?

CRASH: Work-life balance. I don’t like the idea of a vacation where you’re sitting there with a laptop being a slave to the market. I want to step away more because I often feel this over-powering addiction to it. Perhaps there’s a way to adjust my trading to trade less and only participate for A+ opportunities.

PETE: What’s your advice to traders today?

CRASH: Be honest with yourself about what you’re actually chasing. In the small-cap world, a lot of traders are borderline gamblers. They say they want to be successful, but what they really want is to keep playing. Even after blowing up, their first thought is how to scrape together enough money to get back in. It’s easy to confuse an addiction to the action with a commitment to the craft, make sure it’s helping you build the life you want.

For the profitable traders–take money out of the money and invest it elsewhere. This diversifies your money so you’re not at risk of trading blowing up literally everything in your life. You can also create a passive income stream which can ease the mental pressure of trading every day.

Last thought–run your own race. There is so much noise out there today in a million different chat rooms to distract you. Simplify things and drown out as much noise as possible. Forget about comparing yourself to others–what they’re doing doesn’t matter to you.

Crash Shares his Numbers:

After hearing Crash talk about shorting low floats with size and sitting through the pain, I expected a much bumpier equity curve. But his results surprised me.

What I saw was a guy who could keep low-variance trading stats while trading serious size on a high risk strategy, a testament to his ability and discipline. I asked Crash to share his PnL curve and his stats and here they are below. He verified these profits with brokerage/portal statements on his phone for me.

Thank you Crash for being such an open-book in our third episode of Churning and Chatting!

Churning and Chatting #3: Crash–The $50 Million Short Seller Who Takes Pain

Starting Out

CAR: Anatomy of a Parabolic Short