You make some money in a trade. But you know you should have made more, since it was an A+ trading opportunity. But you lack a trading system to help you do so to grow your trading account.
In this video we outline a trading system to help you add more risk to your best trading opportunities.
View Video Transcriptyou make some money in a trade but you
know you should have made more since it
was an A+ trading opportunity but you
lack a trading system to help you do so
to grow your trading account well in
this video we outline a trading system
to help you add more risk to your best
trading opportunities hi Mike bellafiore
co-founder of SMB 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 and the PlayBook in this video
lesson we share in step-by-step detail
an A+ breakout trade in neo that helps
us illustrate how you can add more risk
in your best trading opportunities
[Music]
this is an earnings breakout trade ano
happened right before the new year last
week of December so the fundamentals
behind this trade or that neo came out
in the morning releasing very strong
earnings they beat on sales they’d be on
EPS they raised their delivery
deliveries guidance for q4 and they also
improve their vehicle margins the exact
numbers were 257 versus 230 billion on
revenue or a million rather the beat on
EPS was pretty slight they lost 33 cents
a share versus expected 34 cents they
raised the delivery guidance to be 8,000
car sales in q4 which is fueled by their
having a really strong month this month
and so that’s said to be 65 percent
higher than q3 so the idea is that
they’re growing a lot with their sales
they’re also drove their margins margins
down on their vehicles quite a bit was
it was minus 24 percent they were able
to get it down to minus 7 percent and
then it’s also important to note not
this wasn’t tied to the earnings report
but this company’s short float is minus
29 percent so this has a huge potential
for short squeezes and so that played
into giving fuel for the breakout okay
teaching moment so they sell a product
in this case this company sells cars
doesn’t really matter what the company
sells in most cases they sell a product
happens to be cars they’re selling more
and they’re delivering more than people
expected that’s good and that’s why
you’re saying this potentially is a
growth release yes okay and so when
we’re looking for stocks in the morning
we want to look for stocks that can
finish high a day or stock second finish
low a day one of the things in of itself
that can cause something to go high of
day is a growth story okay on top of
that
they’re doing much better with their
margins all right so their margins is
essentially how much that they’re able
to make per production they make cars
doesn’t matter it’s the company that
sells something what they sell they’re
making more money on that’s obviously
good in of itself if there is a news
headline companies improving margins
that could cause a stock to go high of
day and couldn’t even make a stock go up
for a couple of days on that and so I’m
seeing a couple things here lined up
that it’s unusual to have really two
variables with our intraday fundamentals
as news catalysts together that that we
see one would be good – better than good
right so on the long term chart the
stock didn’t pretty beaten down ever
since the IPO and late 2018 um but what
I noticed was pretty interesting about
this is ever since their October
earnings released they’ve been making
they had been making higher highs and
been pulling back into their 200-day
moving average and their all-time view
up so the idea behind the breakout trade
was that hey if they can you know make a
new high from this consolidation they
would get closer to the 200-day Lee
moving average and the 200 daily moving
average would actually be in play on
this day because it’s so close to the
gap you go back to that’s like I’d like
to think that smart money are doing
channel checks before an orange release
for a company like this and so perhaps
that price action before the release is
some smart money figuring out that
they’re gonna do better than a lot of
people expected right so you can see
that 200 daily when we averages at 3
dollars and 15 cents and then on the
morning of we’re gapping up to 290 and I
think the the pre market high was 3
dollars flat so we’re within shooting
distance from the 200-day Lee moving
fridge and the idea behind this breakout
trade is that if we can break above that
200-day on volume then it’s you know
pretty clear skies above and we may have
a very strong drive to upside and have
that high of a scenario if you want to
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online education I the overall market
context we’ve been in a very strong
market all all year and it’s the markets
been especially strong since October
when we broke out from about a six-month
consolidation on positive news and
progress on the us-china trade deal so
this is a market to be buying breakouts
a lot of stocks have been making new
52-week eyes and breaking out of
consolidations with the market yep in a
strong market breakouts should work
better yes absolutely that’s what
breakout should work better when volume
confirms so the game plan of Nijo was to
first watch for a breakout from their
earnings pre market high of three
dollars and if I saw that breakout I
wanted to enter two tiers at risk with
stop load whatever love day was
established on the open then if neo were
to break the 200-day moving average at
3:15 I wanted to add another two tiers
of risk with stop below whatever consult
like the significant pullback low of
whatever opening consolidation had
developed and gotten had broken from and
then the measured move of the gap was
about 50 cents and so my initial target
for this trade was about 50 cents from
the earnings high so 350 and so I wanted
to take off most my size at 350 and
reevaluate from there
and a lot of times what I’ve seen is
either that that target ends up being
the top or there’s a consolidation at
that target for about an hour at around
11 a.m. and then that consolidation
breaks out to the upside and I want to
add my shares back on if I see that so
if that consolidation were to occur then
the plan would be to add two tiers back
on on a breakout with stop below that
consolidation low and exit that out on
into other extensions and also use the
$4 on the 450 level secondary targets as
those were pretty important technical
levels yes I like how you’re doing this
you’re doing this before the open yes
Jake I can see you doing this and this
being particularly helpful for you Kyle
I can see you doing this and be
particularly helpful for you max I can
see you not wanting to do this but it
would be particularly helpful for you so
I like you doing that I think that that
helps to collect your thoughts and give
you a sketch and outline a framework
from which to be thinking with an open
mind of course when markets open I want
to make one point about this stock and
it sort of sticks out at me based on
having done this for a long time
and I think it actually makes trading
these stocks really hard so I’m gonna
pose a question what do you think’s the
hardest part about trading a stock like
this and I want to take a step back I’m
gonna well what do you think the hardest
part about trading a stock like this for
me the part I struggled the most with
was adding as it continued to work
because it required me to get a lot
bigger than I was comfortable with and
so that I kind of messed up ultimately
and adding when both when it broke above
it eventually broke above 200 daily and
when it had the consolidation at my
target and broke higher and I missed out
on quite a bit of money and that’s kind
of where I’ve been struggling is now do
you mean because it was working and
you’re in the money or yes
thing else it was working and I was in
the money but hesitated to add because I
just it it would have resulted in me
getting more big bigger than what I’m
comfortable with
okay so I want to follow up here what do
you mean
bigger than you normally are do you mean
the actual share size yeah what do you
mean the risk both understand the sheer
size yeah the share size too because
this is a this is a cheaper stock so it
requires taking like oh like ten times
more shares and you used to take yes and
that’s what I want to I want to point
that out
I actually think for you guys
particularly for guys who are developing
for guys are just starting that is to me
the hardest part about trading a stock
like this which is and so just to take a
half a step back what’s your wrist size
right now okay and you guys went live in
September and so how many wrist bumps
have you gotten since this in september
q okay so so you’re at $1,000 now and
for this for this trade how much risk
would you want to put on generally with
the idea how what percentage of your
thousand dollars right
the idea with with this tier system that
I had laid out is that each tier is ten
percent of my daily stops so I wanted to
be in 40 percent honestly in hindsight
with this you know the way I behaved was
really special and unique compared to a
lot of other opportunities that I’ve
traded and I think if I were to see this
happen again I would I would hope to be
more than 50 percent of my daily stock
because of how much opportunity it
wasn’t a setup like this you know you
you’re probably you might be thinking
about in tears instead of 300 shares or
500 shares like you might be thinking
about it might be 5,000 shares and if
you don’t have 5,000 shares on then
you’re not trading this properly if
you’re not putting the risk on as you
should then you’re not trading this
properly
you know have enough arrest gone if you
have enough risk on and a trade like
this then you’re you’re messing up
pretty bad and so but that’s so it’s so
easy to do because you’re just not used
to at this point yet seeing you know you
could see 15,000 shares on and and
that’d be the equivalent of a thousand
share position yeah but you got to think
of it that way
you’ve got to got to got to think of it
that way and so you have a thousand
dollars with the risk intraday right now
you want to risk a hundred dollars per
tier if you’re giving yourself twenty
cents you know did I do that right it’s
5000 chairs yeah you’ve got to be
thinking in 5000 chairs and if if you’re
not there you got to go back and review
that okay and when you bump it up to you
know when you get your when you get up
to 2,000 and it’s got a double
accordingly it’s it’s got a double
quarter line so this is just a pre
market chart showing that 50 cent gap
and it kind of allows you to visualize
the initial target and then you can also
see that that 200 daily moving average
is just right above so very close to to
that pre market high breakout level so
on the open neo immediately put in a low
and it closed a two-minute bar above
earnings high with an opening our wall
of 55 and so that’s what dr. s
references is that institutional volume
institution stepping in with very large
positions and so as soon as I saw that I
entered my two tiers of risk with stock
below the Loveday then it immediately
got above the 200-day moving average and
consolidated for about 25 minutes above
and and then broke out and so this is
where I should have entered another two
tiers but by this time I was already up
to almost a thousand shares and that’s
where I got a little psyched out by the
numbers and I did not take this ad so
I’m really glad glad you brought that up
because that was the biggest struggle
that I had when we ever do something
like that we’re gonna take the next step
which is when you
your review specifically say I need it
to be this big this many shares I need
to be risking this amount which is this
percentage of my risk and review that
write that down specific specific
specific specific I write that a lot to
pretty much everybody that I get
feedback to and our daily report card
specific specific specific when you can
do something better don’t tell me you
can do something better tell me where
yeah tell me how tell me how much sighs
how much risk and and go from there that
is a productive step a ineffective step
is well most people do that’s what most
people do and that’s one of the reasons
why people continue to underperform
people continue the same thing over and
over and over again they just I’m not
suggesting you’re doing this because I’m
sure you didn’t but you know they say oh
I should have traded this better oh I
should have been bigger I mean you know
wth that is not how you get better
I should have been bigger here in this
type of trade and risked this a much
with the stop here and my target here on
every trade you see like this that is
how you get better don’t get better by
saying I should trade bigger if I would
have traded bigger I would have made
more you know when you guys have shark
come in the room you eat he’s that’s how
what he’s doing in his individual
reports he’s being specific
absolutely so right here when it broke
and made a new high what should have
been done is adding another 20% of my
daily stop against that consolidation
low and at this point I should have
moved the entire stop for my original
position to be below this low which
meant that not only am i adding the 20%
of risk but I’m also adding size to
account for my updated stop because my
stop is not nearly as wide anymore at
low of day so I can really got I don’t
know the exact numbers anymore it’s been
a while but I believe I at this moment
in this moment I could have tripled my
position and I still would have been
risking not 40 percent that I
I want it to be in my original game plan
so once neo reached the initial target
per my plan I get 75% of my position and
reevaluate we wait for the once I should
add that once I saw it to turn if it if
Nia were just a boss to be my target
without any red bar without like without
any sellers then the correct thing for
me to do would have been to only take
off a little bit 25% and then wait and
trail below that initial target but
since neo started to turn off the
initial target I get 75% of the position
and then wait for a consolidation and
break for a new high to add back size so
I would write that as gets to the third
350 target and capital a capital and
capital de begins to turn yes
key key observation there which is you
want not just target but target and turn
and that will keep you in the ones that
target and then don’t turn and you stay
in the money so over the next hour and
15 minutes
neo gives that bullish consolidation
puts in a low puts in a higher low and
then breaks out on very clear volume and
so here is where I plan to but did not
add another two tiers of risk and I
should so I should have added that two
tiers of risk with stop below that not
the higher low I’ve gotten faked out
numerous times doing if I were to stop
out below the higher low but rather the
significant pullback low that came
closer to view up and that would be
treated as a new core position to catch
the next leg of the move into the
afternoon yeah and look don’t think of
dollars yeah I love I actually like the
way some of the guys on Twitter talked
about 1 hour to our yeah think of it
think it up that way and don’t think of
it as shares or dollars of risk of risk
think of it as percentage of your
overall intraday risk bank yeah so it’s
$100 it’s 10 percent $100 and use those
numbers because of the car spying effect
to your you’re introduced up
but I think it’s tempting to be like oh
I’m up eight hundred and sixty dollars
which may be you know or twelve hundred
dollars which may be a lot for for you
at this point but in time it won’t be
those numbers are arbitrary they’re
arbitrary think of it as percentages 1 R
2 R and go from there
yeah absolutely using a tiered system is
like 10 percent of my stuff 20% of my
stop and then just adjusting that number
you know what I got wrists bumped has
helped me a lot psychologically with
just scaling up I guess after it broke
out neo went kind of parabolic into that
second target of $4 and here’s an
example of where it reaches the target
and does not turn and so I only exited
half my position here and trailed below
that $4 I wanted to see either a close
back below the 4 dollar level or
significant selling below the 4 dollar
level to get out of the other 50%
otherwise I wanted to wait for my next
level of 450 to be reached before I
consider taking off any more size you
can see here that pair that parabola
continued and got even more parabolic
and so once you know hit the secondary
talk target I took off another 25% of
that of that piece that I was in and
this I was not in and any of my ad but
this is just of the 25% that I was
holding from the original target and
then once it broke back below the 450
target I got fully out of the position
normally I would hold a quarter of that
in case the stock were to close like at
the highs just for a chance of it
gapping up into the next day but there
was some really heavy selling on the
tape here and it seemed pretty obvious
that Nino was putting in kind of like a
local top and so that kind of made the
on on-the-fly decision to just take off
the full position because it seemed like
this move was overdone I was also you
know the stock was at like 250 in the
pre market and now it’s
almost at $5 so it just seemed like it
was extremely overextended for the day
so it seemed like the right thing to do
so here are my executions entered in the
morning and then exited most of the fall
right and so just before we we move on
from this yeah we talked about this a
lot in the past anything you can do with
technology to help you trade this better
going to art um not a whole lot other
than just our wall research I’m seeing
the with this trade specifically I think
where I had the most edge was note
reading the report and knowing that Wow
with with neo beating the numbers
raising guidance also having a high
short flow also gapping up above its
daily you know important daily
resistance this is probably going to be
a runner especially if it gets above its
200 daily moving average and then seeing
the opening our wall at 55 usually on
the open with any earnings name if it’s
above 50 or even if it gets like closer
to 100 which I think this was look like
it like 932 that’s a really strong sign
of institutional buying from just what I
what I’ve noticed and seeing horrible in
the past and so I think those were the
key factors that that led to the
decision to make this trade so I feel
like you said no but then made an
argument for yes so there are things
that go you can look at using this
really good trade to find other really
good trades based on our ball yes yes
our vault on the open when it’s just
extremely elevated like an astronomical
number that is an indication of this
juice okay guys I just want you to keep
thinking about that yeah I want to do
well would you would you look any better
so I did something as well and and
something’s not well I kind of brushed
over the things I did poorly were but
we’re not adding when it broke the two
hundred dealing we averaged and that was
because I was already in roughly a
thousand shares and you know I would
have had to take another I would have
had to get it into three thousand and
that’s something that that
to just get used to with the stock
that’s that’s $4 and that was probably
the biggest lesson from trading me oh
and I think next time I’ll be I’m now
far more prepared to get a lot bigger on
a cheap stock like this with the smaller
ATR I also didn’t do a good job of
adding two years back on late and eleven
o’clock late morning breakout and that’s
something that I’m pretty hit like I
don’t have a good I’ve been doing very
well at but something I’m trying to do
better at this month a lot of times with
stocks that run a lot you do get that
that consolidation during mid-day
and that’s kind of like the
make-or-break point between a big runner
and kind of just like your average
runner stock is does it break higher and
if it does break higher usually it’s
going to make a measured move of of that
initial morning move and so I I need to
do a better job being part of that so
that’s another area of improvement and
then the things I did that I’m happy
with I’m happy that I did enter the two
tiers of risk that I did on the opening
drive and getting up to I think it was
eight or eight or nine hundred shares
that already was making me uncomfortable
so I’m glad I at least got that far
and I’m also glad that I was able to
scale out an initial target of 350 and
with how I exited I waited through the
four dollar break rather than kind of
exiting most of it prematurely and then
I got out a lot of the latter part into
that 450 failure now it’s your turn
which effective trading technique
discussed in this video are you going to
implement into your trading will you add
more risk to your A+ trades or will you
think of each trade and percentage terms
when determining risk or maybe it was
just another concept let us know by
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