In this video learn how elite proprietary traders are taking fewer trades with more size and risk and achieving even larger profits. Learn how you can trade less and why you should focus on trading less to help grow your trading account.
View Video Transcriptin this video learn how elite
proprietary traders are taking fewer
trades with more size and risk and
achieving even larger profits hi I’m
Mike bellafiore 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 and the playbook
click our subscribe button so you don’t
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for you in the trading community learn
how you can trade less and why you
should focus on trading less to help
rule your trading account so this is a
day one fresh new set up an apple
there’s also a market relative weakness
set up using the overall market big
picture so today the big picture of the
overall market the spy had put in a low
fifteen days ago and rallied thirty
percent since at that low volatility
peaked at 85 now volatility what was
trading at forty s so the market was
still in play but nearly as in play as
it was back when we were at the peak the
daily volume for spy also had dropped
off 40 percent and a matter of that last
three weeks and so things have slowed
down but are still we’re still in a
market in play environment so with that
compared to March especially my focus
points and April have become to really
focus on stock selection focus on only
the strongest and weakest day ones and
day twos really making sure that I
identify what setup I’m taking rather
than you know taking a breakout breakout
trades or scalp trades that’s been
helping me a lot using more risk per
trade at least 25% of my daily stock
that helps encourage me to be more
selective with regards to execution what
I’m what I have been working on so how
are you what are you doing to find the
strongest and weakest stocks for day one
so for day one I am both scanning
through all the emails from like we get
emails from Spence Tobias and about a
bunch of hammerstone emails in our inbox
in the morning and then I’m comparing
those emails to the pre-market ball
with a pre-market scanner that I have
built and what I want to see is a a
compelling catalyst and then be a lot of
pre market volume alongside that and
then how are you finding the strongest
and weakest state twos so day twos that
have a day two relative strength
relative weakness scanner that tells me
all the stocks that closed at the top
bottom top or bottom 25 percent of their
range with more than one and a half
times their average daily volume and
I’ve been sorted by the stocks have done
the most volume at the top you know and
then the lesser volume down at the
bottom and so what I want to see for day
twos are stocks that are in the top five
or top ten of that filter and those will
be my day two ideas for the next day so
so I look at my filter the day before
and then I create my watch list for day
twos the next day based on that the top
names on that list yeah so for execution
some something I’m working on is
entering when I see a turn allocating a
quarter of that trades allocated risk
against that turn and that’s you know
before I’ve gotten confirmation that the
trade has broken down and start and has
started to work and then when I see the
breakdown or the break up and and the
high-volume coming into into my trade in
my direction through a critical level
that’s when I want to enter the full
100% of my allocated risk on that setup
also this market I feel like it’s been
very important to fight for good prices
and not chase and the still move to move
I don’t it hasn’t made sense for me to
hold more than 25% of a position as a
core unless the stock I’m in is making
new 52-week highs or 52 we close on a
catalyst that’s kind of the only
exception otherwise that I’m trying to
be able to move on this day here here’s
a high timeframe chart of the VIX you
can see and about 27 days VIX ran up
substantially all the way up to a high
of 85 and you know I’ve over the next 30
days we’ve come off 50
and so while the market remains in play
with volatility being above 20 or so we
are in a substantially less volatile
market than in march and that requires
far more selectivity maybe’s a higher
time frame chart it was interesting I
was reading sharks daily playbook
yesterday and I tweeted about this today
and we put it up on our Instagram and he
was saying
to trade less but trade bigger in this
market we’re cognizant of the decline
and volatility and we’re making
adjustments from where we are at the top
and you’re doing a nice job of
recognizing the drop in volatility
though still high though still high
right most will still take it yep but
we’re making adjustments oh good to
notice that yeah I agree I think that’s
been pretty critical
whereas in March I think you could be a
lot more fluid in this market you’re
punished a lot more for taking lesser
quality trades and so you really have to
be focused on a plus setups that you
allocate more risk towards spy you can
see is in kind of a weird spot because
you know it it fell 35 percent from the
highs but in the last 15 sessions its
rallied 30 percent to the upside and so
we’re not necessarily oversold anymore
but we’re also not really overbought
either because you know we’re still
below the 200 DMA and so in this area
I’m really expecting a two-way tape each
day may be different we may be having
you know a strong tape day followed by a
weak tape day and I feel like in this
market more so in any other market that
I’ve been in in the last you know year
it’s so important to be cognizant of
what the spy is doing and what the ETF
and sector that you’re trading is also
doing so that you can trade with that
momentum 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
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running just go ahead and click the link
that should be appearing right now at
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this video you’re gonna learn more in a
couple of hours from this trading
workshop then from years of online
education so the overall fundamentals on
this day we’re that the stock US stock
features were
surging overnight on the release of both
promising preliminary data from a room
des aveer study and also you know new
announcement from the president and his
afternoon press conference that us will
be instituting a three-phase plan to
open up the country and so this caused
the Dow to be when I woke up this
morning it was set to open three and a
half percent higher and most market
stocks were gapping up with it now what
was interesting to me was that the
queues were only gapping up 1% that
morning
that gave me a clue that technology may
be weaker than the overall market today
one thing I wanted to throw in was that
I didn’t want to be too biased on this
morning that we were going to continue
upwards because because we’re in such a
high high volatility market I think it’s
really tricky to just blindly trust a
catalyst like that and so for me I
wanted to be very cognizant cognizant of
whether the market would be showing me
weakness on the open or showing me
strength on the open and if it was
showing weakness I wanted to go to my
best weak stock idea and if it was
showing strength that I wanted to
continue upward I wanted to go to my
best strong markets top stock idea so I
included a quote from Brian Shane and
wrote a really great book a really only
price pace you have to be very attentive
to what price action is doing rather
than trading a bias so Apple in this day
had another headline that was very
interesting
they got downgraded at Goldman Sachs
with a price target cut from 250 to 233
and the reason for that was because they
are modeling was showing that their
demand in the next year or so was going
to decline significantly so this was a
seemed like a pretty major report to me
from a Tier one Bank and it caused Apple
to gap down nearly 1 percent when the
whole market was gapping up now on the
open Apple’s our ball was very elevated
I included a picture of my our ball
filter that I use in the morning that
helps me see way
different stocks have our ball relative
to each other so this is for all large
cap stocks and you can see here Apple
was you know on this list it wasn’t at
the top at the fact that it made it on
this list provides me validation that
this is a good stock to be trading
because it’s gonna have a lot of volume
it’s going to be very in play and if it
was not on this list I would have been
far less inclined to to take the set up
so tell us what you’re trying to do
there with your article filter I want to
make sure that the idea that I’m trading
on the open is being confirmed with a
lot of volume so on any given day I may
have three or four ideas that I want to
look for to set up right and one of the
things I want to see with each of those
ideas is it’s doing a lot of our ball
because that shows me it’s going to
trade cleanly and it’s gonna it’s gonna
move a lot and so what I want to see on
this our boss our ball filter is I want
to be trading a name that that is in
that top 20 or top 30 our balls across
the entire market and I want to use this
also to help narrow my list of three or
four names of the open to one or two
names that way I can make sure that I’m
in the best name because because that’s
so important and in this month’s market
environment you know might be
interesting for you to do like what if
you were thinking about trading
something like AMD and then he took a
look at you may already do this already
so you do this already I apologize and I
suspect you’ve thought about this
perhaps but what happens if you think
about trading AMD on a particular day
and you take a look at the SM H index
and you start to ask yourself I have an
idea that ambe’s gonna go up or down and
you start to compare and these are
evolved to the rest of the stocks in the
particular s mhm is that something
you’ve thought about that is something
I’ve thought about so I actually was
trying to do that it with Apple a little
bit today are on
stay Apple I was trying to sift through
other technology stocks on the list and
the only two other technology stocks
that I felt compared to my Apple idea
that had higher our ball were Roku and
Netflix on this day so I remember on
this day going through those names and
and trying to figure out whether I liked
one of those names better than Apple and
I ended up for going with Apple because
it had the catalyst and the others
didn’t really have much reason to go
down but I think that’s a definitely a
very interesting idea and favoring them
the higher our ball name or favoring
something that has high are more
relative to the rest of its sector I
think is definitely a powerful idea some
other stats about Apple 80 are about 11
bucks it does a ton of average daily
volume 54 million shares and it’s a
institutional stock it’s 16% follow up
on that so what if you compared its
arbel to the other fragments right I
think that’s I think that’s the way to
do it I I was looking at I mean Apple
this day I know had the highest amongst
the other other thing names that I could
find
but I also think that there has to be a
catalyst component as well I think it’s
it’s one of many variables but I think
having the highest árbol under sectors
is a very very big check in favour if
you have the idea already that something
is going to move in in some particular
direction in this market condition and
in April yeah good use of technology
good I think that the institutional
ownership was also important given the
nature of the catalyst being at goldman
sachs downgrade i think institutions
look at that and maybe take it more
seriously than if it were a stock with
less institutional ownership so i felt
more comfortable trading a downgrade on
Apple than I would say on something with
a far smaller institutional ownership
like a low flow my morning game plan for
today really started with the spy
because the spy was so in play on this
day with a gap up that was three and a
half percent but then came back down to
being only about two percent
I had a pre market inflection level that
I really liked it was 285 50 and my plan
was that if the spy holds above that
inflection level and ideally above you
up then I want to be focusing on my best
strong market stock idea and if it holds
below and there’s clear weakness I want
to be looking at my best weak market
stock idea which was Apple if there’s if
the spy direction– was not clear and we
were going to just consolidate within
this range I wasn’t too interested in
playing this this relative strength
relative weakness market setup in
general so that was my plan going in for
spy Apple had clear weakness it was
actually down to nearly two and a half
percent from where the pre market opened
up and so my plan was I wanted to look
for a setup just a standard gap down
short set up on Apple if the market
ended up turning weak that starts with
looking for a pop on the open looking
for that pop to turn getting short on
that turn small risk and then when it
finally goes through
I want to be entering my full-size short
against against the high so that that’s
the main scenario I was looking for
there were some other scenarios that I
had in my head from prior GAAP down
setups that I had studied you know I was
also open to seeing consolidate on the
open and then breaking up or down
there’s also a pattern where it drives
upward and holds for thirty minutes to
an hour and then consolidates and then
breaks down you know what my least
favorite scenario a where it drives
downward immediately with an opening
drive and then consolidates and breaks
down further and that scenario what I
was planning to do was take smaller size
on the opening drive because I’m not
super comfortable with those opening
drives and then traded to pull back into
view up or the Viwa Perea try to ride
the the move lower for that opening
drive to the downside you really want a
negative news catalyst that speaks to
the fundamentals of the company speaks
to the core of the business that
potentially would get me a little bit
more comfortable playing an opening
drive right at the beginning so I but I
point to this is not that you should do
that my point to that is you should in
your in your mind think about what you
want to see to get more comfortable
taking out a little bit more risk with
your your opening drives and and maybe
that’s a break of a important technical
level
maybe that’s what get you more
comfortable maybe it is more of a
fundamental news catalyst to get you
more comfortable I don’t think it’s true
that you feel uncomfortable every single
opening drive I think if you think about
it you’re more uncomfortable on the ones
without a really good catalyst now if a
words in your mouth
no you’re right and I think what I
didn’t like about the opening drive on
this trade was that I wanted to see the
weakness and spy on open first before
taking Apple short and I didn’t feel if
Apple
one before spy I didn’t feel like I
would have enough time to deter make the
determination that Apple was was weak
enough for the short but I also think
having a level would have been helpful
because I know that in my opening drives
that I have been successful with very
often it’s it’s through a level on B it
like through green or through open or
through a very big technical level I
think that that’s that’s very often
helpful for me as far as my execution
strategy use 25 percent of the trades
risk on turns with tight stops against
the turn hi this is a big focus for me
this month that’s something that’s more
new to me because I’m not so you you’ve
said the school times when you say use
25 percent of the trades risk on turns
when you’re using the word turns how
weed finding that so turn I right now up
my definition is pretty loose it’s so
let’s say for the short it can be a like
a read one-minute or two-minute candle
it can be also when you have like a
buyer that gets taken out like a bid
that gets taken out with a lot of red
prints and and it’s going up that’s also
a turn to me and so when I when I see
either that price action turn or that
tape turn I my goal is to short with the
tight stop against that whatever high
was put in and that’s something that I
am trying to be resilient with because
it doesn’t work all the time sometimes I
have to try it two or three times before
I finally catch it but the risk reward
when I finally do catch it is you know
it can be five to one or or even ten to
one yeah I would just suspect that your
performance is better and you have to
measure this when you see that turn on
the tape as opposed to you see a turn on
a one-minute chart with your candles yep
it is it’s more clear it definitely is
more clear when I see the buyer get
taken out or maybe there’s a seller get
taken out you can see the flood of red
prints get I get put in or the flood of
green prints get put in it’s generally
more clear when I can see it on the tape
breeds open question to yourself which
is should you be a little bit bigger
starting the turns after you see it on
the tape well by what we mean by that is
we’re watching the order flow watching
the prints or what basically we’re
watching where the stock is trading in
real time and how that’s being reported
to the marketplace and when you get good
at reading the tape there are certain
indications that give you a potential
signal that a a move is about to occur
so stocks going up going up going up
going up going up going up it’s going up
in a particular way you notice the
buying pattern and now you notice that
buying pattern disappear maybe you
notice that buyer disappear and that’s
an example of you seeing the turn on the
tape I would suspect that with your
trading having a little bit more risk on
when you see things like that would be
more beneficial for yourself as opposed
to it’s going up is going up sconce
going that’s going up to go up go nuts
go nuts going up and then you’re looking
at your charts you know so hey this is a
red candle here on my charts let me
trade against that hi not to suggest
that can’t be something you turn into a
good trade but but I would suspect that
that isn’t as promising and that doesn’t
deserve as much risk as the scenario I
painted before and if that’s true that’s
something for you to think about and
potential area for you to improve
absolutely absolutely I think using the
tape that’s really the main focus for me
I am still not entirely happy with my
ability to identify the turn on the tape
I think that’s really where I just need
to be spending more time reviewing
reviewing video and screen recording of
my best trades and identifying okay here
was a spot where I could have gotten
really really big against a really tight
stop and here’s why
I could have done that here’s what
exactly what I saw I think journaling
journaling that has been helpful and I
need to continue doing that as part of
my routine I suspect that you probably
can limit your trading to mostly those
times when you actually do see the turn
from the tape and limit to special
occasions when you do it based on the
charts and you’ll do a lot better can
you do a lot better and when people talk
about they want to use the tape and they
need to get better at those skills
there certainly are certain scenarios
where you at this point can recognize
when the tape has changed and when the
turn is likely to have been shown to you
that you can take you don’t have to
totally worry about getting it right all
the time you just have to you just have
to begin considering can you see the
turn a little bit more often than you
had last week last month can you
identify it turns you are comfortable
with on the tape and taking those the
more obvious ones for you then then
necessarily worrying about getting all
of them right absolutely I agree
I completely agree and then beyond the
turn for me when I see the breakdown
through my my level that I’m working
with with the trade on heavy volume with
clear selling on the tape or clear
buying on the tape that’s when I need to
be full risk you know if I’m allocating
a thousand dollars to the trade that’s
where I need to be risk a thousand
dollars and ideally no later because
that’s usually you know as soon as I see
that that’s my best price and that’s
that’s the price I need to take it’s if
I hesitate in that moment it it’s very
easy to
find yourself with a far worse entry
less trades more size less trades more
size
yep on Apple on this setup you can see
did one of the scenarios I was thinking
of it popped on the open and it quickly
turned back to the downside
back back with the pre-market trend I
didn’t short here I think I should have
shorted here before that turn my thought
process was that I was watching the spy
in this moment and I wasn’t entirely
sure if I wanted to be in the trade yet
but I think seeing Apple give that turn
on a higher ball what was enough for me
to take that trade seeing that seeing
that turn there I think that that was
this was a great opportunity to enter an
initial amount of risk against the turn
hi
and then here was the breakdown you
can’t see really the volume on the on
the volume chart just because there’s so
much volume on the open but there was
when Apple got below to the open that
day
it held two below it for for a second
and then as soon as it started to hold
it hold below it a big seller started
coming in and they were just a big sell
bricks getting thrown at the tape and it
started flashing lower and lower so
that’s a clear enough signal for me to
enter full risk against the high for my
position that Apple is going to go lower
for at least the rest of the morning
session and alongside that spy was also
getting sold below my inflection level
and below you up so pairing those two
variables together that was that’s
really what made it clear to me that I
need to be entering this trade and the
fact that Apple was showing that first
breakdown through my open level that was
the indication that okay this is the
moment I need to be entering full risk
on this trade at least 25% of my daily
stock because I’m seeing it you know
that’s it’s just super important to do
that here rather than waiting for like
yesterday’s low
pre-market low where I’ll get a bad
price and the reward won’t be nearly as
good question for you hmm
in time after you grow after you get
more experience is this the type of
trade where you could see yourself
taking thirty thousand shares and being
comfortable taking that trade absolutely
I think if my you know my daily style
was big enough I you know I would still
want to be taking 25% of whatever my
daily stop is in this moment and what I
love about Apple is that I could I feel
like I can take infinite size on this
thing it’s so liquid that you know I’ve
I think the highest I’ve gotten is is
1,000 and there was zero slippage so
yeah I feel like it’s very possible and
very I could definitely see myself
getting 30,000 shares if I’m seeing all
the variables align on a trade like this
in a liquid name like this that’s my
goal
less trades more sighs good thing to be
thinking about my questions a good
question for you to be thinking about to
start to separate your scalps from your
really good trades it’s fine to scalp
around it’s fine to make cashflow
scalping around when you’re thinking
about building your play book when
you’re thinking about building your
business when you’re thinking about hey
what’s it really gonna be what trades
are gonna be really worth your time as
you grow good question to ask yourself
is you know when I’m bigger stronger
better would I take 30,000 shares on
that trade could I do that and if the
answer is yes then now you’re on to a
special trade now you’re on to something
really worth studying now you’re on to a
different type of trade less trades more
sighs that is a way you’re gonna build
that playbook to put together some big
months so
was an interesting moment for for Apple
it actually formed a consolidation right
under the open but above the pre-market
low and that consolidation ended up
showing the exact same breakdown pattern
that was shown when it broke through the
open and so this was for me a rare
opportunity to double down on the trade
which means in this opportunity with
this breakdown I get to tighten my stop
on the trade I no longer need to use a
level above the open because we’re
breaking below pre market low I now can
use a level above pre market low because
I’m tightening my stop I’m now using
less risk and so on this break down I
get to add you know more sighs I get I
can nearly double up on the trade and
still be just risking the exact same
amount that I was risking at the open
and so that’s that was something that I
was working on in March and that’s
that’s what I did here where I have the
arrow drawn I doubled my position on
this break down tighten the stop and my
target became roughly a measured move
from the down move that was created from
from the from the initial turn at the
highs I think this was how I was able to
make claw on the Strayed using this
technique yeah really good point I
tweeted about this and we did an
Instagram video about this which comes
from observing the Lee traders at our
firm and some of the triggers that I
coach outside the firm some of the best
active traders are reaching new levels
by taking less risk reducing stress
lowering drawdown which is bringing
better consistency and it seems
counterintuitive and it’s against the
mythologies that’s out there about how
you become a big trader which tends to
be holed through pain fight the price
action increase your holding time
predict if the markets gonna go up or
down I’m seeing the
best active traders work actively work
intensively on reducing their stress
they’re literally trying during the day
and these are some of the biggest active
traders in the US huge P&L you know
we’re not talking green shirt level
we’re talking mid seven-figure traders
mid seven-figure a year traders five
million dollars a year plus traders
they’re not working on fighting the
price action stomaching paying a little
bit more increasing their holding time
they’re working on reducing their stress
they’re working on limiting their risk
and they’re in doing so guess what’s
happening they’re making more money so I
love that you’re thinking about adding
risk in a way that actually isn’t
causing more pain taking on more risk
giving yourself more stress I’m not
seeing the best active traders doing any
of that I see them taking less risk
reducing their stress their stress
lowering their drawdown proving their
consistency and and and making more
money that makes a lot of sense so this
this three-hour consolidation a big dog
consolidation ended up forming after
that breakdown from free market low and
so the way I executed this this part of
the trade was once Apple hit that
measured move target and clearly showed
a high volume turn right in here I was
out my entire position because Apple had
gotten too nearly to the target that I
was thinking of and also because it was
showing that turn against me and so I
don’t want to be taking too much heat in
this market I don’t be holding that much
of a core so I ended up getting out all
the position there and waiting for Apple
to form a new set up where I could throw
a risk back on so what
ended up happening is it formed this
consolidation and my rule for
consolidations like this where I have a
hunch that it’s a continuation pattern
based on it having a strong strong down
move and then not very much not very
heavy by volume my idea or my rule is to
look two short turns near the highs of
the consolidation with again 25% of the
setups allocated risk I want to be small
enough to where I can try this multiple
times and when I see the breakdown of
that consolidation on volume that’s
where I want to be entering full risk
again against a tight stop within that
consolidation and so that’s what I
attempted to do here I shorted the lower
high here in this consolidation covered
some of the lows just to manage my risk
and then short it again here at the
highs and then I again this whole time
I’m staying very small so that I can try
this multiple times I think I got
stopped out on this one when it made a
new high here but then here down at the
lows when I start started to see the
breakdown and a big falling clearly
started picking up on the tape that’s
where I hit the breakdown with my full
my full risk allocate or disposition
against the last lower high in the
pattern so you can see that it’s Apple
ended up breaking down again once Apple
I ended up scaling out as Apple sir went
down and then once it overextended at
the lows and quickly reversed with you
know another high-volume turn that’s
where I was out the full move and I
think it’s very important to do that in
this market it’s just really important
not to take a lot of heat on these types
of trades because the market has such a
two-way tape and so things can reverse a
lot more easily so here are my
executions this is where I double down
the position an area of improvement that
I’m working on on these break down
trades is not doing this where I exit
kind of like every every point or so I
think I can do a better job looking for
a better reason to exit and also
trailing a bit better two or three of
these moments I could have actually just
trailed against like the last one minute
high or given a 20
like a small 25 cent trailer and that
would have allowed me to to hold those
Lots for more of the full move so that’s
not that’s something that I’m I’m
working on far is my review I like my
stock selection here because Apple was
clearly relatively weak and also had
volume and also how to catalyst those
three things were really important my
execution I wish I showed it more on
that turn because I would have a on I
turn on the open because that would have
allowed me to get bigger on the
breakdown through the open on the same
amount of risk because my entry would
just be higher I think I should have
been more aggressive and that could saw
that BigDog consolidation I need to be
studying those terms a little bit more
and getting more comfortable with
scalping in and out of those I think
it’s a it’s a big goldmine and then as
far as the exit just trailing I that’s
something that I should have done on
this on the street I was very quick to
get out a lot of the size and part of
that was because I was somewhat
uncomfortable with how many shares I had
I think it was the biggest I had been on
Apple ever on this day just because I
double down but in reality my risk was
still controlled you know there wasn’t
much need to do stress about about my
size it was the same amount of risk as I
had initially hey go ahead and click our
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