In this video, learn a simple, profitable, and powerful stock trading strategy to jump start your trading progress. See how a savvy SMB intern breaks down in step by step detail a trade very much worth adding to your trading PlayBook. Let’s get to work.
View Video Transcriptin this video learn a simple profitable
powerful stock trading strategy to
jumpstart the trading progress finally
hi I’m 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
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a savvy SMB in turn breaks down and
step-by-step detail a trade very much
worth adding to your trading playbook
let’s get to work today I want to
explain the overage carried squeeze this
is a trading setup on a previous play
book I made called the undercarriage
squeeze I think the reason why I was
able to execute this trade decently in
real time is because I’ve seen a similar
setup before so sector analysis for the
past few days we’ve found that the tech
sector is strong as seen in QQQ with
this we’re likely to see some sector
rotation the this morning the market was
being pushed higher by semiconductors
along with financials and industrials
big picture I think what’s important to
look at when seeing this pie chart is
every single tip is a game bought up and
every single break out usually continues
higher as we see for the past two weeks
dr. s said during this morning meeting
there’s some value information that he
got from other hedge fund managers that
they’re very bullish yet they haven’t
put their money to work yet and this is
valuable for intraday traders for like
us is that we will see that weak stocks
that are heavily shorted can break
higher as a short squeeze and dips are
likely to be bought up in strong stocks
and he’s the QQQ as we can see that it’s
breaking in all-time highs and just to
clarify the QQQ is the focus of the
Nasdaq 100 index that is heavily
dominated by big tech names daily
fundamentals okay we see here that Tesla
is consolidating in a descending
triangle right around the 850 zone
that’s was acting for as resistance for
about a month this is great for your
taking long trades because it’s unable
to move lower and it’s holding near
all-time highs it’s breaking out on
larger timeframes spies also moving
higher and the short interest is 11%
on this particular day Tesla was capping
higher the over carriage v whop squeezed
the criteria for the setup is the stock
must have tempers that are more short
interest breaking out on larger
timeframes
this has edge because we’re gonna see
that there’s big buyers behind it behind
it with a fundamental catalyst the stock
is gapping up 2% or more during pre
markets so it makes it a stock and play
as long as the relative volume is
following through they must see an
opening drive lower price mister
consolidate overview op for 15 minutes
or more but when you see it’s a stock
holding over V WAP it’s considered a
good risk reward for shorts to add to
the position and also a low volume and
consolidation overview up is showing
that a lot of traders are sitting on the
sidelines for an anticipated move and
with this when you see consolidation
usually what contraction comes expansion
and the consolidation must be tight and
on lower relative volume allows for
tight risk and you’re risking the low of
the consolidation range and then reasons
it sells in the situation can be a
blow-off top a 9 21 EMA cross showing
that the momentum or trend is over price
target hit whether that be a resistance
above the unusual seller on the tape or
your stop gets hits which is below the
consolidation area so there’s something
I really like so far about what you’ve
done and that’s how specific you are and
what you’re looking for you have clearly
defined variables that you’re looking
for you have clearly found a setup
can move a lot higher from where it is
you know exactly what you’re looking for
you’re putting yourself in a really good
situation to catch something that could
move away from price quite a bit meaning
you can make a lot on the trade well as
you’re developing your PlayBook I would
encourage you to do more of this
the specificness of your variables for
what you’re looking for or how you want
to get in and how you want to get out is
is very very strong
yeah exactly and then there’s other
variables you can put into it like you
see what the range is that it’s
consolidating over V whap and how long
it’s consolidating along with this is a
picture-perfect consolidation with a
drying up of volume as we clearly see
that it’s just getting lower and lower
and lower and then as soon as we get
this break then that’s as likely we’re
gonna see the continuation higher and
this is where you want to add to your
position and this is the the now moment
where you want to get in and then coming
off of this breakout we see a very nice
continuation higher with a blow-off top
or a piercing candle as on the way up
we’re seeing continuation in volume and
this breakouts confirmed by a 1-minute
candle closing above the consolidation
you’re seeing it on the tape and you’re
gonna see the volume coming in this is
the original trade that I’ve gotten the
over undercarriage squeezed from is this
first one was in United same thing which
you move lower we move up we consolidate
25 minutes breakout and volume and we
get a huge continuation higher with
another Bowl off top and then here are
these two trades they’re different
stocks ones United ones Tesla and
they’re very similar set up both have an
opening drive lower both have greater
than 10% short interest both are
consulting over 20 minutes there’s a
decrease of volume and consolidation
range similar price action in a way
they’re both gapping up and the
difference is is they have different
árbol and the average true range with
these trades are gonna be different
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couple of hours from this trading
workshop then from years of online
education I also want to show you guys
two setups these are from today so this
is wayfarer I wanted to see if I could
find some setups in this this I didn’t
play this because it wasn’t in my pre
market plan but same thing we got to
move lower we get consolidate for 30
minutes and we get a move higher Wayfair
fits all the criteria they have a 28%
short interest and they’re a gapping up
higher in pre market they may all like
this meets all the criteria for a under
or over carriage view op squeeze and
then there’s another one same thing this
is also today we got to move lower we
move up we consolidate overview up for
this one is for 30 minutes and a ninety
or in the ninth range and we get a
breakout and elevated volume and
continuation higher but like these
setups all look super similar to me I’m
sure it does absolutely for you guys as
well you can find an edge in this type
of setup have you built a filter yet or
either of these trades that’s what I was
gonna get to I have not and if it was
this what it came up for sure yeah and I
think this is something that you want to
be working with Nick on as soon as
possible
and you know I reach out to him I’ll
connect you guys but this is something
you want to have built this weekend
because you want to let tec-9 one of the
huge advantages at our firm is we can
build technology custom technology
really quickly that we want very simple
filter for you to build you’ll be able
to do it very quickly and you know Nick
will assist you if you need help with
with it very powerful alert for you to
have with your trading this is a
terrific setup we call it actually a
different name in archery which which I
know you guys have gone through in our
training program fine for you to rename
it a little bit and there’s a little bit
different cuz you add that short
interest in it which I actually kinda
like but it’s very similar to one of the
best trades that we find for intraday
trading and just the crux of it is that
consolidation for a long period of time
in a stock that’s in play okay
denotes that there are people
positioning long and their people
positioning short intraday there there’s
some big bets being made long and
there’s some big that’s being made sure
and when it breaks from that tight
consolidation particularly if it
continues and the trend that it looked
like it was heading in you’re gonna get
all those people who are holding it up
buying you’re gonna get all the shorts
covering you’re gonna get a lot you need
some trend traders in there seeing that
this is strong wanting to buy and you’re
gonna get particularly you mentioned on
the daily chart those breakout traders
there they’re gonna be popping that up
as well so there’s a lot there’s a lot
of people they’re gonna want to be
buying the stock for which you can you
enjoy and it’s something that can
continue for a decent ride to the upside
so it’s a really good set on a good
setup to find all right what else we
have I just want to point out one more
thing about this is the risk reward on
these trades is great because you’re
risking the bottom of this range when
with a one-minute crandall closing below
per say because you want price and time
to be below and in Tesla’s particular
case this is a one to fifteen risk
reward just if you would have played at
ideally you it to the blow off top like
so the risk reward in these in these
setups are very good I’m gonna take that
trade quite often a one to fifteen risk
reward is a good trade to be in the
trade management in this I could have
done much better with my sizing and
adding to my position my first entry was
at the bottom of this consolidation
range which I was seeing on the tape and
seeing buyers coming around this 936
area or 935 area and I added again which
I saw it like it’s getting a little
tighter a little tighter and then we
move up and I actually took off most of
my position unfortunately right here but
I held onto partials and then I just had
a very small core throughout the rest
what I could have done better is added
here maybe take off a small portion here
and then just ride the momentum until I
see my reason to sell I’ll just explain
some of the important things key points
I saw on the tape when we were in the
consolidation range every time we got to
the bottom of the range I was seeing the
bid stepping up is thin on the ask and
offer and buyers were holding the bid
and refreshing as soon as it broke out
of the consolidation that’s when the
time and sales started to speed up again
the bids we’re really stepping in most
transactions were on the ask big prints
are also on the ask
and time and sale was accelerating I
think the important thing with this
trade is for me to able to recognize and
you see the price action the volume and
the taper all behaving in a way that has
edge and for me to enter the now moment
opportunity flow when I see the trade in
it and it matches my criteria I will
take it every time this is because I’ll
be able to track the win rate and get
big if this setup works for me this is a
high-quality setup with edge and
recognises this in real time will allow
me to scale the trader and I think
what’s important about this is the is to
find the easy money and I think is easy
money is identifying the opportunities
that provide the best risk reward by
gathering checks that have edge and then
the last part of this review ISM I would
really I will do this this weekend is
build a script to scan for this setup I
have your slide right here where you go
over the variables that get you into the
trade so one the stock must have above a
10% short interest number two breaking
out on a larger time frame number three
stock is gapping two percent or more
number four
price must consolidate overview up for
15 minutes or more
and number five consolidation must be
tight and lower relative volume and I
don’t think you’ve talked about that yet
Coleman which is in that consolidation
what do you mean and what are you
looking for when you say lower relative
volume in the consolidation so when it’s
when price is in that consolidation
within a range the volume in that time
is going to be lower than the opening
drive lower and when we see the
consolidation in that range a lot of
traders are gonna see that as is like
indecision or a lot of traders are
sitting on the sidelines waiting for
that breakout to happen or that next
move to happen and I like how you’re
adding a high short interest for this as
well
that’s gonna cause you know particular
from the long side that’s gonna cause
the stock to move a little bit more as
you’ve got more natural buyers who are
covering their shorts that’s I like I
like the addition of that variable as
well and then you go on to say why this
has edge one the price action is
breaking out on a larger timeframe with
bigger buyer behind it with News two
sectors moving higher with news and
other stocks three holding above you up
good risk reward for shorts to add to
their position the greater the squeeze
for the long number for low volume and
consolidation means traders waiting on
the sidelines for an anticipated move
five tight risk risking the low of the
consolidation range yeah so it’s it’s
important when you’re building your
playbook to get a feel for why this
trade is gonna work you’re gonna spend
time building your career from a
playbook and you’re going to practice
and put money and play from your
PlayBook you want to sort of understand
like why are these trades working is
this especially can that gives you more
confidence unless you’re just a quant
which is fine maybe some of you will
become quantitative traders but even a
even a quantitative trader is gonna is
gonna want to have confidence right why
it’s gonna work I’ll give you an example
so I’m reading the Jim Simon’s book
which I’m sure plenty of you have read
and talks about the birth of Renaissance
and how they developed into you know
probably one of the great money
management firms of all time if not the
top and you know the story behind
Renaissance is it was a firm that was
first started by mathematicians mainly
from the Stony Brook math department
SUNY Stony Brook in Long Island who
we’re trying to solve the markets
through math through analyzing data and
one of the first big discoveries that
they made was done so by analyzing data
and that this is this is certainly raw
for today’s terms they were pioneering
how to be gathering data sorting through
it and finding edge by doing math and
finding patterns and data and so the
data wasn’t anywhere near as vast as it
is now but but the ideas are the same
which is you know how do i how do i find
edge how do i find patterns based on
using big data and coming up with
quantitative models and when they came
up with one of their first very
promising models
Jim Simon’s incredibly gifted
mathematician who whose goal in starting
Renaissance was to have a quantitative
model who he could rely on because he
didn’t really like the ups and downs of
trading when he used his discretion he
had trouble stomaching it he wanted to
have a way to invest in markets that was
more quantitative and that is unique
talents a little bit better and when
presented with a quantitative model that
he had been looking for that was that
was promising
and was working granted on small size he
felt uncomfortable running it Jim Simons
felt uncomfortable running it because he
didn’t quite understand why the model
was spitting out buy and sell signals
and because he couldn’t understand he
had less competence in it and it it even
for somebody whose goal it was and who
was so gifted in math it took him time
to get used to that so in our human
nature is if we can if we can understand
why these trades are more likely or not
to work mornings naturally as
discretionary traders would be have more
confidence in them so that makes sense
and then I get reasons to sell blow off
top number one number two the 9 for 21
EMA cross squeezed upward trend is over
Coleman can you talk to you explain what
you mean by that
yes um so as price is squeezing higher
the nine EMA is gonna be above the 21
EMA and likely when we see the backside
of the trade the nine EMA will cross
back under the 21 EMA showing that the
trend is likely over and a price of the
stock is overextended relative to that
day alright great three resistance or
price target is hit that could be a
pivot point that could be a capitulation
area that
overhanging maybe that could be all-time
highs and give me a multiple of things
and then the unusual seller on the tape
usually like what you see is the ass
start to get really big at a whole
number it’s likely to be like a big
number and a price isn’t able to break
through that and maybe you see it test a
couple times and fail at that level and
then we’ll likely see continuation lower
and then your stop hits so I was just
your reason to sell your stop is I if a
price breaks below the consolidation so
you having a super-tight risk again how
do you feel about these these trades
overall these two trades that you’ve
identified I really hope to see them
again I see that the risk reward in them
is so high if I take these trades like a
hundreds and hundreds of times
even if I have a 50% win rate the the
risk reward is so high that all of the
losses will
although winds will way out all the
losses all right great
so let’s keep taking more of them let’s
get those filters going yeah really like
the trade for you really like the trade
for the guys listening powerful trade
encourage you to take more of them it’s
a trade that absolutely works trade you
absolutely can
start seeing success and pretty quickly
so good stuff really like the variables
really good job there hey go ahead and
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