In this video, learn level 2 strategies every Day Trader MUST know (taught by a Prop Trader). Let’s get to work on sharing these important trading lessons so you can grow your trading account.
View Video Transcriptin this video learn level two strategies
every day trader must know
taught by a prop trader 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
let’s get to work on sharing these
important trading lessons so you
can grow your trading account
my name is ryan i’m a junior trader here
at smb capital
today i’m going to go over a way to
scalp around your position
build into a nice core size as a way to
build up cash flow while you’re looking
to execute
a larger larger idea trade so for
example i’m going to show you a trade in
apple
the idea is apple had a really weak
close the previous day
had a strong gap up with the overall
market and the idea is that i’m looking
to
build into a long position as the stock
builds its opening range on the day
looking to build some cash flow selling
out into some upwicks
building back into my position when it
retraces back down
eventually looking to solidify my core
for a larger up move
back towards the previous day’s highs so
the context for the trade is apple was
trading roughly around 117 on the open
and i’m expecting there would be some
sort of pull
back down towards 115 115 50.
any type of down moves given the overall
context of the market
i’m going to be really interested in
looking to try and buy into a core
and given the fact that i’m not
expecting us to have some really crazy
opening drive to the upside
just given the fact that we have to
digest the previous day’s move
and we really need to see some actual
strength come in to bring this stock off
the lows
and you also need to see some strength
from the overall market coming in the
queues for example
until i see that i’m not going to be
comfortable holding all of my size
and that’s when the strategy of reading
the tape and using the tape to your
advantage
in order to scalp out and build up cash
flow so that your overall risk and
average price gets better
that’s when that really comes in handy
right off the open
we get a really quick move up to 117.76
and then a quick rejection down as soon
as we start coming down into the 116
30 16 40 area i’m starting to initialize
my position
so i’m watching the tape here i’m seeing
it to be a little bit heavy as it comes
down towards 116.
you can kind of see it stall then it
re-bids back up towards the 30s
i added one lot two lots
kind of looking to hold maybe a two lot
position but willing to get all the way
up to five lots
hasn’t given up 116 yet
just kind of stalling here the opening
wick down
added up to a third lot as it continues
to hold into this 30 cent area
and we’re still kind of stalling here
right so as i pause the video
the biggest thing i’m thinking about
here is i’m in three lots of my position
i’m interested in getting potentially up
to five lots
and scaling out any move back up towards
117.
if 116 drops i’m going to have to be
really careful with the way i scale in
to any further ads because there’s a
potential that
we completely wick down underneath this
pre-market consolidation
we take out 115 and then i’m underwater
trying to catch a falling knife on a day
when
you know if you look at the 15-minute
chart
apple’s relatively weak hit a five-day
low
and now it’s gapping up back into the
range kind of the breakdown period from
midday the previous day
so i really need to be careful here i
really need to make sure that if
i think that the market and the queues
and apple are going to bottom
that opening drive or any type of
retracement from an opening move lower
i really need to be quick to scalp out
my risk until i can build into a core
where apple proves itself says it’s
going to stay up
and then potentially we get that opening
move higher if you want to learn three
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years of online education so i’m
watching 116 really carefully here
holds nicely my average price is
roughly at 41 cents now so it’s a little
higher than i would have liked would
have liked to be closer to 20s but
obviously the stock’s moving very quick
we get an interesting upside wick there
i think that’s a late print up at 118
but we did spike up to 117. it was too
quick for me to take any profit i don’t
want to just hit the spread
but now i’m starting to think okay any
move back up towards 117 i’m going to be
really interested in taking off some of
my size
so i’m layering out some offers to see
whether or not it’s going to get up
there
a little wick back down towards 116 but
it’s not breaking yet
still digesting this little opening move
lower
you can see it’s definitely very sticky
around the 20 to 30 cent area and by
sticky i mean
when the stock comes down to that price
it kind of sits there for
maybe a half a second and then pushes
back up towards the top of the range
50 60 cent area
average price still 40 cents
a little bit of size came in on the 40s
and stock like apple i’m not really too
interested in watching
size get stacked on the offers unless
it’s some type of key technical level or
a whole number
so i’m still hanging in there add it up
to another lot
so now i’m in four lots total
looking to scalp out probably one or two
lots as we push up towards 117.
so now i’m thinking if we break above
like 60 cents i’m expecting to get that
upside wick that can
cover a little bit of my risk
get about 60 cents
very quickly into the 70s watching how
it comes into 117
thinking it might possibly break but any
quick failures here i’m definitely going
to take off two lots
took one lot off there
kind of flicking around
if we get back up into the 80s i’m
thinking i’m just going to take off that
other lot
took it off right there so now i’m back
into my 2 lock core
average price 1 16 40 but i just took
off 40 cents of risk
so now if we drop 116 i’m in a little
bit of a better position
to potentially work that down
essentially you can think about it as my
average price is now 116
which is the area that i’m wondering if
we drop out from there
and we hold 115. i’m going to be scaling
into that again
so lo and behold
we’re still spending some time here i
haven’t touched it
haven’t touched it dips back into the
40s
i put on another lot now i’m up to three
lots
again my average price is technically
probably somewhere around 1
16 20 at this point but on paper my
average price is 48 cents
we’ve got to move back into the 80s
layer out an offer not sure if this
offer gets taken
i move my offer down a little bit just
because i can see
kind of feel momentum slowing here
you can see we’re having a really hard
time getting and holding above 80 cents
which is kind of the top of this range
you know you can think about this as
being kind of a shelf right here
kind of 117. no reason to add a momentum
lot
or add another lot and not take it out
when you get 40 cents on it
so now i’m still kind of hanging out my
average price has moved up to 50 cents
but that’s okay because i’ve now taken
three lots off for a 50 cent profit 40
to 50 profit and now i’m just waiting to
see we got to break over 117 potentially
i’ll add a
another momentum lot and if we flush 116
i’ll have a trade decision to make
i want to see how that flush happens i
want to see where the cues are at that
time
and if that flush looks like something
that’s potentially viable
i’ll look to work into a five lap
maximum
again scaling out into any moves in my
favor
so we get the 116 flush move all the way
down to 80 cents i haven’t done anything
yet i’m looking to see how this moves
this move develops
sorry i’ll rewind that a little bit
now any push towards 1 15 50 i’m going
to slowly look to add some lots
got up to a third lot right there
so i’m using this entire base
consolidation
as a little bit of help a little bit of
support as we flush lower
i got another lot there in the 40s
the ultimate stop on this is if this
entire consolidation breaks
i’m gonna take the loss i’ll probably
lose a point on it but if i lose a point
on three four five lots and
i made half a point on three lots
you know the risk reward ends up being a
little bit better than just taking a
full stop on that entire full lot size
usually in these situations if you take
a full-size loss on those
you’re going to feel a little bit worse
if you don’t have any cash flow built up
if you’re developing and you’re not yet
there where you can read the tape
and you’re still trying to learn the way
to flow with a stock
my suggestion would be pick your niche
whatever your niche is let’s say you
trade low floats let’s
say you trade the market let’s say you
trade high beta stocks
pick one that you can get a feeling for
that you have some some success with
trade it on paper watch how the tape
develops apple will very
often dip down to these levels kind of
take out little wick consolidations it
kind of trades like spy in that way
it’s not going to hold levels very
clearly you need to see how it behaves
around those areas
it’ll very often re-bid after a wick out
a little bit of a stop run
you can kind of see it stop runs this
area stop runs this area
very quickly re-bids about 50 cents so
at this point i’m in four lots i’m very
close to adding my fifth lot
and any move back above 116
i’m going to take that 50 to 60 cents
back up towards my average price
because of my core is from 116 two lots
and i have five lots down
now where i’m adding in the 50s the 40s
the 60s of 115
tossing those out back above 116. i’m
consistently moving my average price
lower and lower and lower
while also adding cash flow on these
little wiggles
so now i’m back up to full size all five
lots
any of these moves above 116 i’m going
to take an opportunity to take some off
we get a really nice retracement pop
right up to the 1 16 30s
and you could see me aggressively taking
size off got
literally all the way right back to my
core because i just got a point on the
scalp
so now i have a point that i just made
on three lots i’ve made
40 cents on three lots before so now you
can do the math on that pretty easily
i’m now basically i’ve made myself two
points on a trade where
the idea hasn’t even played out yet the
idea on this day
is for this swing high from the previous
day to be taken out and for us to
potentially gap fill from that day
before
so on a scenario like that i’m targeting
119 i’m targeting 120 for spy
or i’m sorry for apple and we literally
haven’t even moved out of the
pre-market range but here i am already
sitting in the money
up about two points on two lots so
effectively
i’ve moved my average price all the way
down to 114. you don’t have to think
about it that way
you think about it as having cash flow
still risk the right opportunities
you know you don’t want to say oh my my
average price is 114 so i’m just going
to take this all the way down if apple
completely fails
the stop on this trade is still 115 and
you still have to be really careful with
that
so now that i’m sitting in my core the
next trade decision is
if if apple pulls back and we get a
little bit of a move to the downside
do we put in a higher low and what does
a higher low look like
so it was being a little bit aggressive
here as it’s holding this 1 16 30 area
kind of the level where you saw me
scaling in before
but in my mind i know that if this drops
116 i’m going to have to puke
potentially everything because i i’m
also watching the cues i don’t want the
cues to fail from view at
and i know i can always get back in and
restart
like i said i’ve already built up a
decent amount of cash flow on the trade
the idea is not invalidated unless 115
gets broken
and i can always get back in
so now i’m sitting in i actually got up
to six lots on this one
you kind of see we’re we’re still
spending some time above 116 here 1 16
30s
skip the head a little bit so as you see
a really nice compression here
there’s two things that can happen we
can either break to the upside and get
to 160 117
or again i’m going to scale all the way
back down to my core or we drop out
116 and i have to see whether or not we
make a higher low
that move can happen kind of violently
and if it happens really violently i
might just tell it all
and reset and see if these bids step in
so very quickly we get back into the 80s
and the 70s
i’m sitting in this position i’m all the
way up to six lots so i have to be
really careful here
any move underneath like 60 or 70 cents
i’m more than likely just gonna get out
reset
maybe be somewhere around flat on the
overall idea
but i’m still not sure about whether or
not apple’s really gonna have what it
takes
to make this larger context move that
i’m interested in
so i’m looking to be flexible i’m
looking to be nimble i’m looking to stay
involved in the trade
so if this wick right here doesn’t stay
and we get some type of flush into the
50s i’m more than likely going to have
to exit
we get that flush i quickly get out i
want to make sure the low of the day at
26 cents doesn’t get taken out
if it doesn’t get taken out i can get
back in
they barely hold it there we start to
re-bid get back into the 60s and 70s
and now i’m reinitializing my position
i’m about flat on the overall trade
but i now i know the real risk is
definitely 115. 115 gets taken out i
think the trade idea is invalidated
but now i have some levels to work
against i’ve
gotten a feel for the way that the
tape’s flowing i’m not necessarily just
sitting flat-footed riding this down you
know
i still think the idea is valid
so as we’re kind of stalling here on the
tape i worked up in
back into a core so now i have a core
from 64 cents
the stop on the day is 115 about 60 risk
on my on my core so any
40 50 increments i get on any ads i’m
going to be quickly taking off
so i’m all the way up to four lots now
any wick above 116 i’m going to likely
take
we get the push back up towards 116.
kind of the previous failure point of
that consolidation is right here
so any thrust up into the 20s i’m likely
going to take off and get all the way
back down to my core
get the push here i want to see how it
behaves
all the way up to my fifth lot
so now i’m watching really carefully
here to make sure we’re not getting some
type of wedge breakdown
i’m all the way up back into six lots
here so if we do flush 50 cents i’m
going to be really quick to get out
i can’t afford to watch this go all the
way under 115 full size
my average price is all the way down to
1 15 80 now so i’m still in the money 20
cents or so
in a relatively decent spot any moves
above 30 cents i think are gonna be
great opportunities for me to scale out
again six lots my core size is two lots
if you know your core size
ahead of time it’s very easy to know
when you’re a little bit too heavy when
you’re a little bit too light
and you can use those opportunities to
take advantage of the way the tape is
wiggling
before you get some big momentum break
nice move to 40 cents or so
doing a good job holding this thinking
we could potentially break this little
swing high right here
now i’m thinking one 1650 gets broken
i’m going to try and scale
all the way back down to my core
two lots off right there previous
failure point
117 a little bit of a psych level on the
day
down to three lots
and on that 117 break i get down to my
two lots
so now
i’ve worked my way into a core of 200
shares my price is 116 again
i know the real stop on the day is now
low of day 1 15 26 about 80 cent stop
but i just got a point on four lots and
i’m in a two lot size
so you can make the argument why aren’t
you holding all of your size for the
bigger move
why are you getting being so quick in
and out you know are you paying all
these fees are you doing this or that
the moral of story is the idea is never
invalidated
the idea that i can find better areas to
risk against
better areas to build into a very solid
core
and then let the stock work and
capitalize on these wiggles
by using my tape reading skills it’s
perfectly okay
to just pick a level to risk off put
your size on
and size in but as you get a little bit
more sophisticated with your tape
reading abilities
you can build up cash flow so that if
you are wrong on a trade
and the overall idea ends up stopping
you out you could have still even made
money on the process
so like you saw when i got wicked
underneath on six lots
so i had six lots and i look we moved
all the way back down
to one fifteen sixty even on this move
right here when i was in six lots
i wasn’t even down on the position i was
probably pretty close to flat
so my head was still in a great space
when they made a higher low i was able
to scale back in and then i very quickly
got a point and a half on that move
and established into a very nice core
and then from there
apple ends up just consolidating kind of
wedging the rest of the session
i was working my way in kind of doing
the same thing
you know stopping out when i didn’t have
enough or stopping out when i had too
much and it went too far against me
getting back in building into a solid
core what you’ll see
ends up playing out
this right here this compression this is
a 15 minute chart
throughout this entire compression i’ve
been building in building in building in
taking off
and then we start to get a really nice
sit sit sit sit sit
you see before 15 30 45 an hour an hour
15
we stay in probably about a 50 cent band
once that band breaks to the upside
towards 119
you start to see apple curl up a little
bit
it’s around one o’clock it’s not the
best time to think that you’re going to
really get some type of momentum break
we barely stop out anyone short from the
top of this wick from the previous
session
scale out into those moves you can kind
of see
this is all this is me very active very
active scaling out
very active very active this is
everything you just saw in the video
then we start to compress
i buy a little more by a little more by
a little more we get the momentum break
that you guys saw i sell out into that
and then just kind of ride it into the
potential highs
so again that’s a great way to use your
tape reading skills
to build into a core get some cash flow
to manage your risk properly
and eventually have a really nice size
position for a much larger move hey go
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