In this video learn how our equities trading desk uses unusual trading volume to find a profitable Gap and Go and PullBack Trade. Two proprietary traders from our firm show how they use a powerful trading signal to find profitable trades right on the trading open.
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in this video learn how our equities
trading desk uses unusual trading volume
to find profitable gap and go and
pullback trades hi I’m Mike bellifiore
co-founder of SME capital and we’re a
proprietary trading firm located in
midtown Manhattan and I’m also the
author of the trading classic one good
trade in the playbook
in this video lesson to proprietary
traders from our firm share how they use
a powerful trading signal to find
profitable trades right on the open
[Music]
so this was a treaty that made and
Netflix the other day we called us a
doctor s trade and it’s a gap and go and
pull back trade recognizing unusual
buying volume so what is the doctor s
pattern this is a pattern that aims to
identify that a stock that has
significant movement and highly elevated
art of all within the first few minutes
on the open we’re trying to identify
what institutional sentiment is for the
day and do the nature of how
institutions must execute trades this
strategy tries to capture the
continuation of the initial direction
alright so we’re looking for stocks that
are in play stocks that have a catalyst
in them either a technical catalyst or
news catalyst stuff that we talked about
here before the open and then what we’re
what we’re thinking about is if this is
gonna be a trade that’s gonna be a
really opportunistic trade for the day
if this is gonna be a trade that’s going
to trend for the whole day if this is
gonna be a trade that’s going to move a
lot during the intraday or for two days
or three days if this is going to be
something where we see in this case
extended buying unusual buying over a
period of time what should happen and
what should happen is you know our
thesis is hey this is a catalyst day for
this particular trade either technical
or news based or sometimes both but and
it’s gonna be something that could
really move directionally cleanly and we
can make a lot of money what should
happen right on the open what should
happen right in the open is that lots of
volumes should come in lots of buying
should come in there should be a thrust
higher with elevated volume the
institutions who really want to soak up
the stock should be footprints the
big-money trader should show themselves
they express showing themselves with
elevated volume
a thrust higher that we can see and if
we see that we want to participate in
that trade alongside of them and again
this could mean intraday traders can be
a two day trade this can be a three day
trade you can make them into different
types of trades but that is what we’re
playing around with that’s what we mean
when we’re talking about the doctor s
pattern who was nice enough to read this
idea for us that we’re working on and in
this example we’re gonna do from the
long side what we got next so the trade
idea is that a stock gaps up ideally at
least three percent on a positive news
catalyst and if institutions want to buy
this stock on this news we should see
that right on the open with
significantly elevated volume and a
strong directional opening drive
and once buyers establish control um the
idea is to get a core for a trade to
hold for it longer intraday or
potentially multi-day move and as a
general risk rule risk 10% of your
intraday stop per tier so one of the
things I love for you to add to your
playbooks is something we call trade
strategy and I’d like for all you guys
do this as well and then the title of
this I reworked this for you but in the
title of this there’s two trades I’m
trained as an attorney
I’m trained as a lawyer I went to law
school I don’t practice I never
practiced I like to think of things
logically and I think you can learn from
that when when you put this together you
called it a gap and go trade okay and
then when I actually read the
description of the trade and what you
did there was a gap and go trade and
then there was a pullback trade and so
what you want to get into the habit of
doing is seeing trades very clearly as
to what the trade is a gap in go trade
playing the momentum right on the open
is a separate trade
separate variables that has a separate
trade system that has a separate trade
strategy that should be unique to you
and then a pullback trade is again a
separate trade that has a unique trade
strategy that has variables specific in
it that you are going to adhere to and
you just want to make sure when you’re
trading that you see I’m making an
opening drive trade and I’m gonna trade
it like this I’m making a pullback trade
I’m gonna trade it with this type of
strategy and with this type of system
and so that’s super important you don’t
want to sort of mix things up in the
middle of a trade you can actually have
two different trades inside of a bigger
idea but they you know you can have a
big idea that in this case Netflix is
gonna trade up for the next 2-3 days or
it’s gonna trade up all day today and
you can have a momentum trade in it and
then you can have a pullback trade in it
based on the same idea but your stop for
momentum trade for your opening drive
trade is going to be distinct your stop
for your pullback trade is going to be
distinct your target for your pullback
trade is going to distinct your target
for your opening drive trades gonna be
distinct your strategy’s gonna be
distinct for one your strategy’s gonna
be distinct for the other ok and so a
long time ago I wrote a book I know you
guys sort of see me walk you around here
every day and I just sort of make this
as an observation and I hope it comes
off that way but I wrote a book on good
trade that if you essentially are hired
at any prop firm globally
a majority of the proper forms globally
and what is the book that traders are
told to read one good trade so all
around the world if you’re hired at a
prop firm that is that is the book that
you are you’re told to read and I do
hope that came off the right way I do
not mean that I mean that observational
II and so that’s essentially what I’m
saying to you which is make one good
opening drive trade make one good
pullback trade and the second book I
wrote is the playbook and Johnny I’m
gonna give you a copy of this before
spending some time with us but so we’ll
sign this and give this to you but the
second book that I wrote builds on one
good trade and it’s the idea of building
your overall business trading business
with a series of one good traits a
series of playbook trades and and and
then measuring them and building from
them and seeing which ones that you like
the best and so you guys are going
through the winning trader here that’s a
series of trades that you are trying to
figure out if they work for you you’re
measuring them you’re experimenting with
them and you’re going to then go build
your own playbook I guess I should turn
around you’re gonna build your own
playbook and it’s gonna be unique for
all of you you’re gonna take some trades
you’re gonna like some trades you’re
gonna like some trades you’re gonna like
some trades you’re not gonna like some
trades you’re gonna like some trades
it’s just gonna be different but we’ve
got to be thinking very concretely about
each individual trade so the big picture
on this day so I was pretty range-bound
the only make the only macro event that
was really happening was that Boris
Johnson stated the possibility of making
it illegal to further delayed brexit
potentially resulting in a hard Brooke
suit there was nothing new related to
the China situation so as you can see
the market
very range boned if you want to learn
three real-world setups that our traders
use including the simple setup that we
teach all of our new traders and the
setup that turned one of our traders
into a seven-figure big money earner
check out the free webinar that we’re
currently running just go ahead and
click the link that should be appearing
right now at the top right hand corner
of your screen that’s gonna open up this
free registration page in the new window
so don’t worry you’re not gonna lose
this video you’re gonna learn more in a
couple of hours from this trading
workshop than from years of online
education so intraday fundamentals for
Netflix on this day the total number of
global subscribers increased by sixty
three point nine million from March of
2017 to September of 2019 with Europe
Middle East and Africa regions recording
the largest increases followed by Latin
America okay so I highlighted that
essentially what that means is the core
of their business is getting stronger
they sell subscriptions they’re selling
more one of the key metrics for this
company is global sales and they started
here with it would this be able to
translate into other markets it is the
core of their business is doing well a
key metric is showing that and so some
of the levels that I was watching was
this 306 50 level and as resistance was
this 320 level the ATR for Netflix was
7.29 7.65 the average volume was eight
points one seven million our wall on
this day was elevated at five the short
float was around five percent which
didn’t play much of a role the float was
over four hundred million the
institutional ownership was about eighty
three percent and on this day Netflix
was only getting about one percent so
this is looking at the daily for Netflix
as you can see they’ve kind of been
accumulating a little bit higher
following their earnings report this is
just looking at a five day showing the
run-up that we’ve had prior to today
just looking at intraday 5-minute I use
this a lot for finding the trend for a
stock especially if it’s a stock that
I’m trying to hole
for the day this is the one minute all
right Jake so let’s bring you in here on
your review of this trade you lined up
some key stats can you walk us through
why these are significant and what they
mean on this trade and a lot of other
setups when something plays out I like
to look back and see when did it change
when did the pattern show itself and
what characteristics were there that
could provide insight to being able to
trade this another time
not going forward so Ryder was taking
was take a look at right on the
beginning the opening drive produces a
few green bars and then right as it
slows down I wanted to see when it’s
slowing down
what happened beforehand what happened
as it slows down and what’s happening
afterwards so we see that the arvo on
the table below that it was slowly
decreasing and then the average daily
volume was getting higher and higher but
at a slower rate and that the change in
the percentage of the ATR was increasing
open to this point and then once it
pulls back right before it pulls back we
can see that the acceleration so the
difference between you know each minute
and how much further up it got started
to slow down and being able to look at
this chart and a few others was able to
see that right when that change finally
occurs that there is a recognizable
pattern that the you know in the in the
volume in the relative volume and the
acceleration of the chart and to be able
to identify that turning point so when
you’re looking at those stats what is
that saying to you is that giving you
more confidence on one particular side
and and if so why I would say in
particular with just only one example I
could see what happened exactly here but
being able to match this with the FedEx
trade that we went over yesterday as
well as other examples of the dr. s
trade you can see that the pattern tends
to come up again when
that pullback is occurring we can see
that in the beginning that they direct
the direction that it moves test the
arvo over each example and see that it’s
always above for when it’s in that
opening drive you can see that the
percentage of average daily volume when
it’s low when it starts to slow and
eventually it does have that short term
pullback it’s been over ten percent in
each of the examples and for the change
of the ATR that there’s been over a half
of an ATR move in those first seven
eight minutes in each of the examples so
it’s just confirming that this pattern
is occurring oh good so you’re using
statistics in real time to give you more
confidence that this is indeed unusual
volume in this particular name exactly
and to be able to do so it’s looking at
this chart looking at what happens
looking at the FedEx chart looking at
what happened and then just comparing
and finding patterns yeah and look we
talked a lot about using technology to
build alerts using technology to build
filters use scripts excuse me using
technology to build automated models you
guys can also use technology to give
yourselves more confidence that
something is going to follow through you
can collect data and build real-time
tools that will say to you hey you know
from here this does have more of a
chance to go up from here
this has more of a chance to finish high
up day from here this does have a chance
to go you know another two ATR this does
have a chance to know to go up another
5% you can spit out that information to
yourself in real time that’s separate
and different than just filters scripts
and automated models and if you can give
yourselves that type of data in real
time you can
start to build them build a nice a nice
tool to give yourself an advantage and I
know you like to trade a lot of low
floats and and the biotech names that
data particularly in those and in those
sectors can be particularly helpful
because it’ll give you a sense of like
how much something can go up give you a
sense as to what you might expect what
your risk profile is in a particular
trade so since this is a trade to hold
we want to identify reasons to sell so
the idea of Gabon NGO is that if
institutions step in on the open in the
same direction of the gap on elevated
volume and do so for a sustained period
of time ie buy an opening drive then the
stock should trend there for my reasons
to sell should be when a stock stops
trending so some examples would be if it
makes a meaningful lower high on a
higher time frame that could be a reason
to sell some of your position if it
breaks and holds below view up that
might also be another place to sell if
it gets extended more than
three-quarters of an ATR from V walk
that could be an indication that it
might be overextended it might need to
make a more sustained pullback and then
if it makes a meaningful lower low on a
higher time frame that would be a reason
to fully exit your position so in terms
of trade management we see significant
institutional buying right on the open
we’re holding above this 306 50 support
area and also above view up this is a
place to enter Tier one risking low a
day for an opening drive push high
that’s where I’d really like for you to
be more specific at the beginning what’s
gonna get you to make this opening drive
play what are the specific variables for
that so that you can be clearer and when
you want to pull the trigger and then we
can see that it pulls back on relatively
light volume we’re still holding above
view up so that is a good indication
that that this dr. s trade is indeed
working and that the stock is likely to
trend higher and potentially close at
the high day this is a place where you
can really add size on because it is so
early in the day
prices they’re able to get much better
prices um so you can enter tier 2 and
tier 3 risking below view up looking for
a trend higher for the day good and
again for that pullback trade what’s the
type of volume you want to see right on
the open and get you interested increase
volume so it doesn’t so if you can be
more specific about that that would be
great and then what’s what’s light
volume mean to you how are you defining
that and then are you always buying it
only if it holds above you up are you
and and and what your stop there are you
considering if at least review up maybe
buying it again if it goes and holds
above you up with the stop below the the
wick below view up so the point is the
more you can give yourself a framework
for how you’re gonna trade that the
easier it’s gonna be for you in real
time you’ll be thinking about less stuff
and you just pull the trigger better so
as you can see like later in the day we
do make a meaningful lower high right
and here this is signaling to us that
the uptrend may be weakening but the
long thesis is still valid so given that
um this would be a reason to take off a
quarter of your position and then we end
up pulling back into vo up this would be
a place to potentially add back on that
size the size that you took off once it
was failing to break down from B Wahb
that was showing us that the uptrend is
still there
buyers are still supporting the price
and so we’re still interested in the
stock potentially pushing back towards
the high day this down move was also on
more like a slow grind lower which is
showing us that sellers aren’t
enthusiastically trying to push the
price lower and so given this this still
validates the long thesis and should be
a reason that you continue to hold the
stock and since this never makes a
meaningful lower high or lower low
throughout the rest of the day and it
stays within three quarters of an ATR
from vo ah there’s no
reason to sell this until the close of
the day yeah I would encourage you to
think about a system where something
spends a little bit of time below view
up if you really love an idea and it’s
acting well technically and you’re gonna
use view up as an exit I like the idea
of adding a time period to that and a
close with that time period just simple
idea you might say I need to see if I’ve
been a candle close below view ah very
simple idea and I find myself getting
whipped out occasionally when it does
make a lower low or lower high so for me
when I say meaningful I do want to see
it I really show that it’s holding below
there show that sellers are holding this
stock lower and I found that having that
specificity has allowed me to actually
hold positions that I previously wasn’t
able to do or you can hit out based on
price and then have a system to re-enter
with a stop below the wick so the trade
variables for this Netflix is a momentum
name that was gapping up about 1%
ideally would like to see it gap up more
than that it was showing us that there
was some strength in the pre-market by
gapping up we was accumulating higher on
the daily timeframe as we saw our ball
was also elevated and held support right
on the open we also saw a sustained
institutional buy-in right out in the
open was significantly elevated volume
showing us that dr. s pattern we saw a
low volume pullback after the opening
drive which was a place for us to add we
held about V WAP for the entire day we
leaked below but we never meaningfully
held below and we stayed within half an
ATR v WAP which shows to me that it
never really got so overextended that
the uptrend was in the question yeah
this is great and this is what I saw him
before
this is what you turn into a trade
strategy if one two three XYZ ABC then
I’m gonna give it one two three worth
the risk and give it a go
good alright so I added this and I just
want to make a point I’m not trying to
give away your code here Jake in fact I
actually cut off some of the code
so but uh so it’s not it’s it’s it’s not
really the code and it the only people
would really understand it or internally
anyway but what I really liked about
what you did here well I’ll let you
explain what you did here so we
identified the doctor s trade as
something the sample and then we say if
we like trades let’s build technology to
help us find them spot them more what
are you doing here one of the resources
that we have available to us here is
cloud quant and cloud font makes it
really easy to be able to look at a
pattern and once you’ve identified that
pattern break it down into variables
such as what Alex it showed I’d say this
is what I’m looking for
by this time it has to occur and what
the script does is that it takes that
the amount of time and it says within
the first seven minutes we want to see
XYZ and if that occurs then alert to me
and let me know that this pattern is
occurring and return the symbols so I
can trade off of that pattern all right
good and if you guys spot trade you
really like so you’re going through this
sampling period where you’re going
through the winning trader and you are
archiving those setups with playbook
trades and you’re figuring out which of
the trades you really want to take and
build into your own playbook for the
trades you really really like you should
be thinking about building filters for
those setups the next step is you should
be using scripts to automatically enter
the last stages you should be thinking
about automated rules in automated rules
out but you know if you really find a
setup that you really like you know
maybe Kyle you like the second day trade
and you see one you hit it you really
like it you need to use the technology
here you need to
building filters for that and if you
don’t have to build them ask and that’s
a good way for you to learn as well but
it just takes one we want to be in the
trades that we really like or in the
trades that we really like it’s not
stressful when we’re in the trades we
don’t like we’re bad traders all of us
even the best traders out here are not
good traders in the trades they don’t
like the work we do with elite traders
universally is how do I stop doing the
stuff I’m not that good at and how do I
get bigger in the stuff I am good at how
do I risk more in that and so you know
how do you feel when you’re in your
favorite setups I yeah
hundred percent relax calm that’s that’s
how I feel – I’m like and it’s almost
like when you’re in the right trade I
don’t want to say you don’t care if you
take a loss but you’re at ease you’re
comfortable you’re at peace if you’re
going to take a loss I am in a tre we
talked about this right now that I’m
about ready to take a loss okay only
shear good fortune is gonna keep me from
taking this loss in this peloton long
that I’ve had the swing trade I’ve had
on for awhile it’s a good trade I’ve I’m
gonna lose a decent amount of money
but it was worth the risk and I would
make that trade again and it’s a good
trade it looks like I’m not gonna be
right on this trade but I want to be in
trades like that and if I’ve taken off
trades like that I’m not gonna be
stressed out I’m gonna do fine and
that’s that’s my job right one good
trade one good trade one good trade as
somebody once wrote and trade your
PlayBook now it’s your turn are you
going to use unusual volume as a signal
to make opening drive trades or are you
going to use it to consider taking a
pullback trade let us know by leaving a
comment below right now
* no relevant positions
