Do you ever wonder whether you should stop trading SPY? You have some great trades in SPY but overall you just don’t make money. In this video we share the specific variables that went into a winning trade in SPY and how you could make this into a profitable trading symbol for your trading.
View Video Transcriptso do you ever wonder whether you should
stop
trading spy you have some great trades
in spy but overall you just don’t make
money
in this video we share an example of
specific rules
that lead to making money and spy 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 we share specific
variables
that went into a winning trade in spy
and how you can make
this into a profitable trading symbol
for your trading let’s get to work
on sharing these important trading
lessons so you can grow your trading
account
[Music]
all right so this is a extreme tick fade
trade i took on spy on monday
and this also uh kind of gave me some
more information to exit out of a
snapchat
short and then end up flipping along in
spy
and so at this point spies sold off
seven points it’s down two percent on
the day
so just steep selling all day
as well as uh i think there’s
three or four extreme ticks so the one
that’s being printed right now
is the fifth extreme tick of the day and
this is right into
336 which is a pretty strong long term
level
can you explain what you mean by extreme
tick
you can kind of see this i would say
indicator in a way down here
so it ranges from typically like plus a
thousand would be an extreme positive
tick
and minus a thousand would be an extreme
negative take so it’s the amount of
stocks in the nyse that are either up
taking or down ticking at the same time
so when you see a reading at negative a
thousand
that indicator is nyse tick
yeah often times you can
find it by typing in a dollar sign
t-i-c-k or t-i-c-k
on your platform along with the uh the
tick
index you can also uh pair it with the
a.d line which would just be dollar sign
add which is also a very good
uh kind of index to watch along with
tick when you’re trading spy
so then i’ll get this started yeah so i
just wanted to kind of point this off
so we’re coming in selling off steeply
and then i’ll flip over to my
entry spot so whenever i want to get
involved so at this point i
had already closed out my my snapchat
just due to the extreme tick and the
over extension in the market
but whenever i want to flip long on a
extreme tick what was the extreme tick
sam minus 1
100 so pretty extreme the
the whole day we’ve been holding below
the zero line
and this was the second largest tick
reading of the day
and so at this point if i want to get
long with a tick reading
i want to see a new price low and spy
and i also want to see
tick after it sets this extreme tech so
the extreme tech is this
kind of green bar i have highlighted
right here
i want to see a new price slow but tick
not make a new extreme tech
as well as the ad line making it higher
either high or high
or starting to uptrend for me to get
into a big position i want
ideally this 70 level i want to see a
new price low so i want to see this
70 level drop and then instantly rebid
so i just have a little bit of size on
for field position but for me to
actually
get involved in this trade and look for
some more upside continuation
i want to see this level so i spotted
this kind of this
70 cent range has been holding for
pretty significant time on the tape
so if i see this level drop and
instantly rebid that’s kind of my signal
where like
all right i’m getting long i know where
my risk set because now if that 70 level
drops rebates and then drops again i’m
just out of the trade
so i’m watching the 70.
and then you can see this whole time
while we’re still hovering at low of the
day
ticks are starting to increase i pull up
the 80 line as well
so i’ll rewind that for a second so you
can see that 70 level drops
so we’ll see
this is super fast on how it drops and
rebates and that’s the
kind of the exact so you can see it
drops out and then we’re already back
into the 70s so i add on
i doubled my size right there sham is
your stop
maybe below 60 cents right there or is
it below 50 cents or what are you
thinking
i i would most likely be giving this
until uh
like 49 cents just below 50 cents
because so on this day i mean
taking these extreme tick fades is a
pretty risky trade
so i typically take um smaller size and
just for the context of the day we’ve
been down training all day so this is a
counter trend trade
like along the market so you have to be
wider stops for counter trend trades and
you also have to uh
it’s more like a tape based trade so if
it dropped out right there
down to like let’s say 50 60
cents i probably would have hit in and
then just hit out right at 50.
because this is a trade we wanted to
rebid instantly so now that we rebid 70
if we drop down into the 60s again i’m
most likely just going to cut my
position
because you want this to work like
almost instantly in your favor
you’re noticing that 70 bit and then
rebid
and i’m wondering if the stop for you
isn’t kind of near the low of the tick
below 70 cents
i think it got down to about 64 63 cents
and then i just added uh to 59 cents
because
that’s a little bit more room
and so that was my question you know
your stuff 59 cents or is it
or is it 49 cents
now is it below is it sort of below kind
of the most logical
price below the the tick below 70 cents
or is it are you going to give it more
to that half
dollar area
and and give it a stop there those are
the two things i’m thinking about
immediately stop below the low of the
wick
stop below the the half dollar uh area
yeah so i think the best way to play
this trade would be for that size i
added on that
kind of impulse wick that rebated i
would just
give that probably tell like that 49
cent range
and then those uh that other 50 of my
position i had on before i would give
until the bottom of this wick because
now now that it’s dropped at 60 we’ve
already printed an extreme tick
you can see a lot of other uh i don’t
have a lot of other stocks in the market
pulled out but at this point a lot of
other stocks are starting to rebound a
little bit
so at that point it’s like this if this
is going to go it’s going to go now
these extreme ticks like it pops it’s
usually
like a three to five minute period
before where they’ll actually need to
start working
otherwise it’ll just kind of start
consolidating and then if it exhalates
and spends a good amount of time in this
zone
then it’s just kind of a failed extreme
tick where you don’t even want to be
involved on the long side
especially in like a very steep uh
bearish day
so at this point we’re holding the 70s
again
so now if it drops 70 i’m not really
happy with this trade so i
want to see 70 this would be an
okay area to add a little more position
once we start to see a little volume
coming through
and once i pull up 80 lines you’ll see
the 80 lines had a
80 line had a really strong reaction
here so the 80 line and so majority of
the stocks in the market are already
trading higher but spy’s
somewhat lagging that move ticks are
starting to
increase a little bit and now we’re into
this 80 range
so this is kind of a spot where you
really want
these 80s to hold and ideally get a
flash into three
uh 36 to take off a little bit of your
position
because a lot of these uh extreme tig
fades uh
fail so you want to cover your risk when
you’re given the opportunity
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years of online education so now we’re
going to push
into the 90s and you can see once we hit
the 80s we never dropped 80 cents into
the 70 cents so that’s adding
a lot more confidence in the trade so
now that we’re at a whole number
i really want to see price hold you can
see we keep whipping
wicking above but we’re failing to hold
so i end up flipping out of uh
yeah so right there i flip out of a
little bit of size just because we’re
not getting any
push above so when we were holding at
336 we weren’t getting that push so like
336.0507
we kept stalling out at that 336.0203
range
so that’s a good spot to cover just a
little bit of rest just in case this is
a failed move
but you also have a lot of checks in
your favor at this time we’re pushing
back up to the zero line on tick
we’re getting a little bit of a pullback
but at this point i mean from a pretty
protected price
if it would come back to the entry
that’s just my signal to get out
especially these 80s drop because that’s
kind of a big thing on this move the 80
cents never drops in that
range so i want to see if buyers are
going to step back in and push this back
above 336 and start holding above 336.
so now we’re back in the 90s not much
selling pressure in here at all
and so now we’re starting to push above
and hold above the 20-day moving average
so at this point we regain 36
and we’re able to clear some of those
levels that we haven’t a
it weren’t able to before and now we
start to see
price moving a lot faster than it was in
this range
so a lot of short sellers are getting
out of their positions around this
area a lot of long story starting to
pile and you can see there’s a lot of
uncertainty just a lot more overall
speed in the tape
and this would be a pretty strong
failure level
previous breakdown zone
so i ended up taking more shares off a
little
a little bit back there just cover
some more risk we’re getting a pretty
strong move here
so we cross the zero line we just
printed the highest
positive tick value of the day
because we really hadn’t so the whole
day we failed to cross over the zero
line you can see almost every single
tick
above the zero line failed and so now if
we can
continue to hold above the zero line can
i have almost
a flip oh it’s not a flip in the trend
but more of a flip in the market
internals
where we can if we can start holding
above zero line 80 line starts making
higher
highs in higher lows this would be a
great
trade to hold for the remainder of the
day
all right a question so if you stop the
tape
why were you trading spy so right now
spy
has a lot of opportunity just because of
how
pretty much i mean the range in spies at
one of like the highest levels we’ve
seen in a while
and i just naturally trade spy pretty
well the best thing about spy in my
opinion is a lot of these other
indexes and tools you can use to trade
it to add a little more advantage
have you seen i’ve talked about this
tick index a lot and i base a lot of my
trades around
as well as the 80 line so i can have
almost
two gauges to trade one stock versus
just uh let’s say i’m trading snapchats
alongside
a lot of these internals aren’t going to
play as big of a roll into it
so it just gives me a little more
confidence in the trade that i have more
tools to work with i would say
okay and how was volatility on this day
volatility was so on this day was the
volatility was
broke out of that 30 resistance zone
and i think it was at like 32
did you get a sense that is there a way
that you’re measuring that the market
overall
was oversold in addition to you looking
at
the uh the the tick reading
there’s like a few things i was using
rsi in this case just around the
intraday level
we were at i think it was 17 and
typically anything under 20 would be
oversold
like i’d say 20s pretty heavily oversold
and especially on intraday reading if
we’re right around 70
on the rsi and we’re getting these
extreme ticks
and so just a lot of the things lined up
at
the right spot yeah and i think that’s
why it worked so i guess my question to
you is
at the end of the month when you go and
look at
how you’ve done in spy what are your
results
you want to you want to pay special
attention to that
spy overall is something that almost
universally
traders don’t make money at at the firm
but
but but that does not mean that
we can’t make money in spy does that
that does not mean all traders can’t
make money in spy
that certainly doesn’t mean you can’t
make money in spy spy
tends to be one of the most over traded
products
which leads to not making money
it it’s that that is one of the big
issues is that people trade it they
think they have edge they don’t have
edge
they do well on one particular trade
they go back to the weld too much and
they don’t see
why a certain trade worked in spy and
compare it to other trades that don’t
work
and so when you’re saying to me that
i’ve got an indicator that i’m using
that that tells me that the that spy
is oversold end
and end so it’s it’s oversold i should
be looking at it because i have an
indicator that indicator works for me
great and then i’m getting an intraday
indicator
nyse tick and i’m using
a good indicator for that
an extreme tick and i put the two of
those together
and also by the way i’ve got the
added advantage that i’ve got a lot of
range
so it’s going to move a lot so there’s
reward
relative to risk in this particular play
well maybe after you measure that
at the end of the month maybe that trade
makes sense
there’s certainly lots of edge to be
gleaned
by looking at extreme ticks
with nyse tick that in of itself is a a
trade worth study
that is a trade you can make money in
100
and so i just want you measuring
i just encourage you to measure at the
end of the month
what specific types of spy trades you’re
making money in
and taking those specifics by trades
because if you don’t uh
it’s gonna be struggle i can tell you
that internally at our firm
there have been very smart people not
myself who have a time
suggested that that every trader at the
firm
be disallowed from trading spy now
granted this was
years ago this is a few years ago and
this was during periods of time when
volatility was
lower in 12 to 15.
and so obviously the results have been
much much better in 2020 because the
volatility has gone up
but yeah that point i mean that that
point that that
smart person made comes from somewhere i
mean it comes from
years of looking at professional traders
who trade stocks
and trade stocks well dipping into
spy and trading spy
you know breaking even over trading it
maybe even losing some money
and and that person seeing the results
for the firm overall
not particularly good i caution you
absolutely i like where you’re going
with this this is worth study
you’re on the right track here you just
got to be really selective
with the spy trades that sam takes
under certain conditions and you’re
measuring it during different markets
like for instance
it may be that that trade right there
works well when when el
when when vix is elevated when
volatility is elevated but it doesn’t
work as well
when volatility isn’t elevated yeah it’s
a great point because
like starting off in my trading career i
would just get chopped around and spy
pretty much all day and uh looking at
the stats there wasn’t really that edge
until i kind of did what you talked
about and set
put together a really strict criteria
and like really the only times i can
trade spy
and that correlates a lot with only
trading it at these extreme levels
because that’s where you’re going to get
a price movement and know if you’re
right or wrong right away rather than
just sitting in a trade all day or
sitting in drawdown all day
so i think it is really important with
spy just
to pick your your prices and pick your
trades
and be very strict with it rather than
treating it like a normal stock
because i’ve had success but i wouldn’t
say too much success in spy
until i kind of got like my rules were
much more strict
yeah so here you can see volatility was
at 32.9 so they’re pretty much 33.
coming into some consolidation ticks are
fading
i’ll push to this breakout yeah
so here’s the 80 line i was mentioning
earlier
so we bottomed down we’re starting to
get a push but not too strong of a push
and then for volatility we kind of had
almost like a blow off top in a way a
full engulfing candle
so for me to stay in this trade i want
to see spy continue to make new highs
volatility continue to fade as well as
the ad line start to make new highs and
break out of
uh kind of this consolidation range
right here
sam is there a range in the trade that
you need
to actually place the trade so if spy
isn’t going to move a dollar fifty if
spy isn’t going to move
30 cents the spy isn’t going to move two
dollars is there a particular
range amount that you’re thinking about
before you place a trade
or is it risk reward or is it i i need a
five to one risk reward or else i’m not
gonna make the trade and spy
i mean i wouldn’t say coming into this i
had these i treated it as a scalp trade
that ended up
kind of holding for an intraday swing so
for me
right away technically five to one would
be scaling out
almost at these highs right here with
such tight risk
so it’s pretty tough to come in and say
i want to
trade five to one because if you exit
your full position at five to one i
would be out
somewhere right in this range so it’s
really kind of
trading it how it is so if it’s pretty
strong and it’s showing strength
which it we haven’t seen all day which
is strong change of character
it kind of gives me the confidence to
hold on to this because after
we’re down two percent on the day we’re
down seven points
there’s a lot of more upside potential
than to the downside
so for this trade i wouldn’t say i
really came in with an exact
kind of range or price target i would
want
so it was more so getting out at the
first time
kind of the first sign that i need to
get out if we start printing
plus a thousand ticks and i see
volatility spiking that’s going to be
more of an emphasis for me to get out of
the trade then let’s say
it’s rallied uh two points from the lows
i just want to see a lot of uh kind of
checks my favorite add up to exit
rather than just taking it strictly off
of a uh
like five to one risk reward because i
potentially could get ten to one
sort of thing okay good got it
nothing too much more important on the
tape and and where do you
where do you get out of this so this was
kind of right my entries on i’m pretty
sure i
closed out kind of right in this shop
consolidation range
i i missed the uh end of the day push
but right and we kind of peaked out
right around here i don’t have it on the
actual tape
i just held uh around 50 of my position
to these highs and once we hit
kind of this consolidation zone and we
just started to not really have that
same
bullish momentum here and then so i
ended up just getting out right
right in that range okay good that’s a
nice move
and i really like what you said which is
for trading spy you need strict rules
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