Hi Mike,

I’m a developing trader with a full-time job. Fortunately, I live on the west coast which affords me the first two to three hours of the day and my entire evening(!) to devote to trading and studying, respectively. Unfortunately, the setups I have the most success with often develop too late in the morning for me to see them through before I must leave for work. So lately I’ve been really trying to improve my performance on the open.

That said, I wonder if you could talk a bit about how (or how not!) to trade the open while still managing risk in the conservative manner that SMB espouses? I find that taking a trade within the first five minutes of the day is often a crap-shoot due to volatility as the morning imbalances are worked out. However, it seems a very early trade is required in order to position oneself well for most opening drives, especially to the short side. I’ve found I can often be completely right about a stock’s direction (at least for the morning) but still be stopped out for a good-sized loss due to volatility. I just don’t feel I have the risk control to call any of these “One Good Trade,” even when they work out! And when they don’t, it leaves me in a P&L “hole” that I spend the rest of the morning climbing out of. Not a very fulfilling way to start the day.

At his “all cap” webinar (excellent, by the way—please keep them coming!), GMan spoke specifically about how he will only “tick trade” the open—all from level II; no charts. It left me wondering how it’s possible to identify and maintain good risk/reward profiles if the short term volatility is so high. Should this not even be attempted without well-honed tape reading skills?

Thanks for everything you guys do. SMB has and continues to be an inspiration to me.

@MikeBellafiore

First, if you’re not trading full time your trading data does not reflect your true potential. Watching the markets trade all day often gives you valuable information about how a stock may trade the next day. You get a better feel for that next trading day by trading the day before. So right now we have your data as a part-time trader which is not particularly meaningful.

On the open we trade the momentum. We do not trust trends in the first 30 minutes. The best play on the open is the Opening Drive. You can catch points with as little as ten cents of risk.

As you gain experience trading the open you will do a better job measuring your true risk for a trade. Reading the Tape will help you determine when a stock may be ready to move. This allows an experienced trader to size up at the right moments. A good tape reader can manage this position by covering and adding to his shorts as the stock moves down. As GMan says, “cover your risk while still being for a big move.” Meaning, even if the stock does not move in the direction of your position, you can still break even or profit by trading in and out of the position. Yes, having excellent tape reading skills is essential for being a good intraday open trader.

We are not just looking at the tape on the open. We have selected stocks that are In Play and will move significantly intraday. We do consider the long-term technicals, as we are also watching the tape. We do weigh the tape more than other factors on the open but it is not the only factor we are considering. We look at the markets this way: trade the momentum during the first 30 minutes, and then look for bigger swing trending plays after the open. There are many ways to look at the markets. This is our way.

We appreciate your question!

You can be better tomorrow than you are today!

Mike Bellafiore

One Good Trade

The PlayBook

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