Do you ever sell a stock too early and watch it trade much higher without you? You can’t believe how much more money you should have made on the trade. In this video, learn how two traders overcame their tendency to sell too early in this killer trade. Two firm traders break down in step-by-step detail a trade they made in SNAP and share what gave them the confidence to hold.
View Video Transcriptdo you ever sell stock too early and
want to trade
much higher without you you can’t
believe how much more money
you should have made on the trade well
in this video learn how
two traders overcame their tendency to
sell too early
in a killer trade 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
class take one good trade and the
playbook
in this video two firm traders break
down in step-by-step detail
a trade they made and snap and share
what gave them the confidence
to hold let’s get to work on sharing
these important trading lessons
so you can grow your trading account
[Music]
igor and i are doing this playbook on
snapchat this is their
earnings on the 21st of october and this
is what we’re calling an
all-time high earnings earnings fee and
so this is kind of an overlay
of the trade itself we are going to be
going into each one of these kind of
bullets a lot more in detail over the
course of the
presentation but we are splitting it up
into
the variables of the name itself the
variables of the trade
and then our reasons to sell so the
variables of the stock
is this is a triple earnings beat it had
several
upgrades in the morning it is a
relatively
stronger stock to the overall market
and is breaking out into an all-time
high we
are sort of very specific on are these
last four
which is the gap up holds the upper 25
of the after hours move the pre-market
volume
is elevated and is holding the after
hours range or the gap
up and much more specifically which is
kind of the nuanced part of
this trade is that this gap up is
approximately two times its implied move
and
the gap up is equal to seven times its
atr so we capped up
seven atrs when you say it’s triple
earnings beat what do you mean by that
within an earnings we are we are looking
for
revenue sales and e and eps
and when we speak about a triple
earnings week we are speaking about all
three of those categories
coming out over the expected numbers
and that to us is equals to a triple
earning speed and by
how much it beats is a bit different but
generally
beating all three of those estimates is
really important thank you and so the
variables of the
grade is there are well-defined
pre-market levels
we are opening at the upper end of its
range
above or below certain pre-market levels
but we
prefer the name to be opening above its
after-hours levels
and so with this trade itself if there
is a morning pull in
on the open it fails to trade underneath
the pre-market level
it was about in half an htr that should
be 0.05
and it then begins to build a pre-market
range this allows us to kind of
have moments of risk control
rather than not if there is a range that
is built um price quickly gets back
into the range after a pulling it begins
to make higher lows
inside of this range and note this is
about 15
20 minutes into the open of a really
large large gap up
and then price breaks out of of that
opening range
it holds the opening range and the
breakout is
on elevated volume um and our reasons to
sell
is short-term changes in price which is
if the price gets back inside of the
opening range when it uh breaks out and
we
will kind of speak on that later and if
price fails to hold
key areas for us which is about two to
three atrs
and three to four atr’s based around
this stats that we’ll go over
is going to be the overall target for
this trade so those would be the
reasons to sell yeah so one thing we
realized joe and i with these
you know er plays that are gapping up at
the all-time high or 52-week highs
is it’s not very easy to you know pick a
correct target level
and you know hold the decent size until
then and what we found is you know
sometimes we might be taking off too
much size too quick
you know looking for 50 60 cents when we
know that this
this stock or hindsight wise it goes and
moves you know three or four points
so we were trying to figure out a way
that we can you know have a better
method of selecting targets
and with that being able to hold a core
or at least
you know decent position into those
targets and you know getting a much
wider move
so to do that what we did is we started
tracking a lot of the
previous earning plays based on their
implied move and with that and
collecting stats on like
where the stock will move after the open
um and then kind of gauging that with
atr’s
you know so then it’s like it works
across the board so
for example with uh snapchat what we
have is the average high
after the open versus atr the stat that
we had would be
was 3.35 so you know we’d look for at
least three atr’s from the open to the
high
and that corresponds to about 3.1 points
on snapchat
and then the average that we had for the
average reserve versus atr
was .57 atr’s so you know we can kind of
use that
you know to look at getting in on a pull
and or whatever
and so what snapchat actually ended up
doing
was 3.92 atr from the open and then the
atr
you know the average low atr which it
did was 0.58
so you can see those kind of stats are
quite closely correlated
with what you know we were looking for
and with that it just gives us a much
better
much more confidence in being able to
hold a decent or majority position
into those targets and capturing a much
wider move igor can you tell me a little
bit more
specifically how are you using these
stats
and from these stats what you’re
expecting yeah for sure so
you know we obviously like to plan it in
the premarket you know
um like we don’t want to be coming into
the trade unprepared
and you know we see like maybe a
momentum break and with that thinking oh
maybe micromanaging taking off half for
50 cents when we know
ideally you know using back testing in
those stats
we can expect this to at least hit the
atr’s
and so with that it just helps us get a
much you know wider move
thing and being a lot more confident in
the trade and really helps
uh reduce micromanaging which is you
know can be quite troublesome for
training okay great yeah so here are the
the
earnings so revenue increased 52 to 679
million in quarter three
compared to the prior year and then eps
which is one of the triple b
categories as well um was one cent
positive versus an expected loss of five
cents per share
daily active users were 249 million in
quarter 3 of 2020
increase of 39 million year over year
and the average number of snaps created
every day grew 25
year over year so those are kind of the
kind of things we’re looking for when
we’re looking for triple b
okay of those what’s most important well
for me the most important is showing
growth
so i think the daily active users for me
is what i like to look for in stores
yes yes yes 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 the free webinar that we’re
currently running just go ahead and
click the link that should be appearing
right now at the top right hand corner
of your screen
that’s going to open up this free
registration page in the new window
so don’t worry you’re not going to lose
this video you’re going to learn more
in a couple of hours from this trading
workshop than from
years of online education so snapchat
itself engages in
in camera applications and it uses
camera
and editing to have sort of online
communication
um through stories videos and chats and
something to note is that snapchat has
been one of the beneficiaries
of kobit since users are more active on
their cell phones
users are becoming more dependent on
online communications with
say work or going to school and as well
as the recent
bumps in the road for its competitor on
tick-tock um so that’s not gonna like
mention to us that we want to take this
trade
um exponentially more it’s just kind of
more of an interesting factor to
sort of bake in is this another thing we
have to start using
do we have to start do we start doing
snapchat now okay
i mean we do youtube we do twitter we do
facebook
we got to do a there’s another we do
instagram there’s another thing we have
to do
all right sorry about that guys and so
the chart on the
right is a chart of igv which is the
internet sector
which snapshot is a very big component
in and it is overlaid on top of the s p
which is the purple line
and if you look at the arrows those are
from the drop before
kovin and if you notice on snapchat’s
chart
um this sector breaks that high only
about
a month or two after after we came into
those lows during um
cobin and spent trending cinch and the
s p hasn’t gotten over those highs to
about double that time spent
yes this is one of the beneficiaries but
also names inside of that sector
are also benefiting as well which
explains the the daily active user
growth in their report yeah so here’s
just the big picture
on the market you know spies where
bounce had already bounced from those
lows
um you know we’ve seen already a few
days a week for some spies and queues
so here’s just the you know you can just
see the relative strength in snapchat
recovered much quicker than the market
names um from kovid
and also this like little pullback we
had recently and you know obviously some
of the main things we look for in this
you know er play
is that it’s breaking over into new
all-time highs or 52-week highs
but then added with this is that it’s
also breaking over that ipo high
which is you know something very it’s a
very good technical
can i jump in here and give you guys
something to think about how do you guys
feel about trying to back test
using daily average users
how do you feel like inputting that into
your back test
and so you can get a little bit more
edge using that i think that’s a pretty
interesting
idea we haven’t really thought about
that much and look i think that the
bigger idea the broader idea is
when you have a news catalyst that shows
the core
of the business is growing the core of
the business is getting better
well what do those results look like and
good for you to be looking
at the statistics you’re looking at they
may in of themselves
get you to the same answer
but while you’re at it you might use an
input of
hey what happens if the daily average
users really
spike in this stock what happens if they
do so in stocks like this
so what happens if they do this in
twitter what happened
and see if you can get some information
there and that may give you
a completer picture of what this
trade what this day is going to look
like something to think about
i’ll let you guys worry about that this
trade for us maybe comes
one to three times in an earnings season
with all these variables
aligning especially with how much the
move is compared to its implied move so
we really wanted to detail for this
exact
trade what we wanted to be exactly
looking for but more importantly not
trying to predict the price action just
be prepared
and kind of avoid the sort of gunshot
aspect that can happen and not come in
with a bias for an invalid reason
and so here i kind of listed these stats
that we already
went over levels which which we would
see into the next slide which goes over
the pre-market and after levels my ideal
risk
for this trade compared to my daily stop
loss
and then what i’m looking for for
confirmation on this trade
since it’s a since it’s a trade with
such a large reaction
um one might think that you know this
might be
over extended and so that’s why we put
on the other
variables that could make us think the
other way and maybe this name
has more room and with that it can be
very difficult
to get in with confirmation and so
defining confirmation is extremely
important this will
allow us to to understand where price
shouldn’t get
get back over or um under and
more specifically where we should put on
the most amount of risk
right because we want to be avoiding
trying to get the best price
and not thinking about the trade idea
but more importantly getting the best
price but also the best time which would
be the confirmation
and for this trade it would be
snapchat doing one atr within the first
15 minutes
if snapchat gapped up seven atrs and say
we think this might trend with three or
four atrs if it’s like starting to fail
at one etr or maybe it’s like an hour
into the open
and we haven’t done one atr that’s a
sign
to us that maybe this day might not
happen um
so judging how quickly and how
efficiently that we get to one atr
and hold um is really important and
we noted that things that would not be
getting us involved which is what i
mentioned us being inside of a range for
over
an hour so a much elongated period of
time
time spent under v walk on the open if a
red move happens
and a failed move to go to two atrs and
it’s coming back in
into this opening range and the reason
being with these
exact earnings this trade should be a
very strong momentum
trend this should not be under its
pre-market
high in the first hour or two hours it
should be well over
that high and trending with a lot of
volume
and a lot of momentum we don’t want to
go into the day saying we think snapchat
is going to do this or
this so we picked up on two nuances
and so if you look on the left arrow we
actually broke a pre-market support
about an hour and a half into the open
that was a change because usually with
these earnings we want them to be
consistently holding
its after and pre-market levels and then
we quickly got back over
that area about 30 or 40 minutes later
and then about 20 minutes before the
open we actually got sold right back
down and the fact that
snapchat is having these sort of
movements is just telling
telling us that the open may be choppy
so maybe we want to be a little bit
inactive all in the open and just sort
of observe
prices and really wait for the
confirmation
and get a feel for the name better than
just trying to buy the open
and just hold it for uh the day yeah
what that’s telling me right there
joseph is that that’s a super important
level so
that’s price action before the open
that’s tight
that’s showing me that that level is
really important it
doesn’t trade below there once twice
three times
almost four or five six seven times gets
below there
finally can’t really hold below there
gets back above there
and before you know right before the
open is still above that
particular area where you’re drawing
your first arrow
so that to me is a is an inflection
point if i can use that word
that that’s i want to know if it’s above
or below that price
when we open up and that’s a really good
point because
as we kind of reference back if there is
a pull-in on the open
we don’t want this to do say one or two
atr’s on the pull-in
and begin to break down certain
pre-market levels
so ideally if there is a pulling on the
open we would like it to be extremely
shallow
so exactly as you mentioned if there is
an inflection coming in right on
the open we’re going to be observing
that price a lot more i guess
like stronger and that is going to be a
really big observation piece
for us and so on the open the first move
fails
at the pre-market highs and immediately
comes right back down
underneath the opening price and has
that pull in on the open
and as you can see this is a two minute
chart we immediately get back inside the
opening price
and try to make a new high we come right
back in we fail again and then at that
point
what we’re thinking is this is really
big
in decision however again with
such a big gap up if we’re only able to
pull in
about a half an hr on the open on a
seven hdr gap
that to us is telling us that this name
is really strong
and so it attempts to break down again
in which that move gets fitted up almost
immediately and gets right back to
inside of that range and that is now the
opening range that we have
prices to be risking off of and now we
are thinking like all right it’s now
coming into
15 20 minutes in into the open
and we would like to see a breakout
within the next five or ten minutes
price breaks the opening range so when
we get above the opening range
so what’s the price that you have as the
opening range when you’re
and using that pre-market price
discovery
as well you have this dotted right here
what’s the price of the dotted line
the yellow dotted line i think if that
is about 30 35.5
35 okay 35.5 so
i’m calling that above the opening range
and i’m
calling that above the opening range
because i’m looking at the price action
before the open
are we using the same language correct
yes
okay what are we doing above there
because i can’t help but do one thing
above there
i i don’t need to really think about
anything else as an old-school
trader as a person who was taught as a
momentum trader
with the stock that crushed earnings
triple beat as you guys said
there’s not anything for me to think
about now i’m doing one thing
you’re buying i’m getting locked that
was the confirmation that we talked
about
in our pre-market plan if there was an
opening range
that breaks out only only inside of the
range maybe
15 minutes and it’s breaking out and the
interesting thing is these orange lines
are
actually atr’s so that orange line that
corresponded to the pre-market high
and the opening range range high is one
atr
on the open so like i mentioned if that
breaks
not only are we breaking that opening
range but we’re also doing
one atr extremely fast right and then
the
other atr’s are more gauges of strength
for
um trend so that’s a really really good
point as you can see when it does
break out there’s one little nuance that
i noticed
and like i mentioned earlier with this
like trade
this is a very strong momentum trend
so often than not there’s not many
opportunities to get long
after it does break out because chances
are this won’t pull back to view up
if that opening range break is true and
if you notice
when it does get into that orange line
and you see that red candle there
we attempt to break down and that
immediately gets bitted up
and no we’re at two atrs at this point
so if we reach
two atr’s try to get a pull maybe back
into the pre-market highs
and immediately gets bidded up if that
makes a new high
and holds there that to us is a sign
that
all right this is going to be one of
those trades where it does not give a
pullback and it’s just going to trend
and the momentum is going to be
extremely
uh strong there and that’s really
important for us because
one it keeps us in the trade longer it’s
information that our at this trade is
working
and two it’s preventing us from getting
overly big
because with that when you’re buying
such an accelerated
like trend without any strong poles to
manage risk
it can be very hard to add and manage
risk
so we understand that so now we’re
thinking all right we’re probably not
going to get a chance to
add in this position but let us continue
to follow
price and go into our targets for the
day
you can see extremely strong gap up
about two implied moves it holds the
pre-market range
and where it holds the after hours range
holds the pre-market range
develops an opening range and then it
begins to trend forward
for the entire morning so this is the 35
brick and if you’re probably watching
snap on the open
there were huge offers at 35
so what i actually did was you know on
that pull-in
and then it gets brought up quick i’m
thinking okay we’re putting up higher
lows and we’re getting over that
you know that pivot or important level
that we now we just spoke about
i want to put on a feeler and maybe look
at potentially adding for momentum not
over 35
so that’s what i did but actually what
happened unfortunately if anyone sees
that wick that already happened
i actually somehow got filled at the top
there it was like less than half a
second
so that kind of messed everything up but
you can see here on the actual 35 break
because i really don’t understand what
that first book was it was a misprint or
something
it was just really clean and we got some
really strong momentum up into like
you know that same first week’s high so
just want to play
here we go bids are coming up strongly
getting tight on the offer those offers
are still there
and then once they start getting
decremented quickly gets over biz are
still rising pretty well
not seeing any selling on the tape
announcing some big bids coming notice
how quickly it got above 35 i mean this
is
uh this is a stock that can do a lot of
volume every five cents
normally and you would expect selling
every five cents and
and it very quickly skipped prices that
skipping of prices
is a signal to you that this could be
really strong going forward
yeah for sure and especially because
recently you know
a lot of these breakouts overhaul
numbers don’t work as well as maybe they
used to last year
but then this one just worked straight
away it goes up 20 30 cents
you know with no hesitation this is that
high low which you know after we pulled
back in
um and so the fact that so right now i
didn’t have any position because
after i got filled at the top of that
work i just have to you know throw in
the
towel and get flat because my average is
now not good
so you’ll see here we rick down to i
think it was like
34 65 or something it doesn’t spend any
time
there quickly gets back up over 3470s
which were quite clear on the opening
range film which unfortunately we
couldn’t see
um and then that like signal to me is
okay now we’re putting on a strong high
low
you know if if i wanted to get in with
proper size and have a super low day i’d
be risking about less than half an atr
and just remembering my targets are
three atr you know that’s looking at
like six to one or four
and then if you combine that with the
factors of that strong
you know momentum break and all the
fundamental analysis
to me that’s just like a great
opportunity to get into size
whether it’s not majority or just a
decent chunk and then looking to add
later
but that was like my key for me to get
in and we’ll see on our executions later
how joe and i took this trade
um so yeah and then it kind of just
chilled around
here and then when it got back over 35
that was just super confirmation
that this trade was now working so now
that we had that opening range set up
as joe was mentioning when we get over
this like area
oh look you can already see all the
offers and that was you know the opening
range high
so if we can get that taken out that
could just you know be
even more confirmation that this is the
start of the trend you can play
um and so that i i wasn’t you know
because i already really got into the
comfortable size
i was not looking for pull-ins to add
but i for sure should have been looking
to add some more in here
you know getting that opening range high
this setup usually works super well and
having a good average
um but yeah so that you could see there
that just got taken out super quickly
and
didn’t even hesitate to pull back yeah
look that’s a long that’s a long
that’s a long that’s a buy that’s a buy
that’s a buy
that you push the button you push the
buy button i
am perfectly comfortable what happens
after that i want to be in trades
where i am in a good risk reward trade
this is setting up beautifully
you’ve got great earnings you’ve got a
good level you’ve got another good level
you’ve got above the opening range it’s
working well
the tape has given us some signals we
let our hands go
we get long that’s our job our job in
this trade right now is to get long
it is not our job to worry about whether
or not this trade
works or not it’s our job to get long
it’s our job to push the buy button
it’s our job to make sure we’re big
enough
and and just see what happens i can’t
control what’s going to happen but i can
control getting into really good trades
i want to be in really good trades this
is one of those
i break down my executions for feelers
interest size and majority and then my
sales are driver’s seat
pay myself majority and then overshoot
sales
so on the open when we sort of drop out
and we can’t trade
underneath the print low i grab a feeler
extremely tiny size but i understand
with this position
that getting in early is really
important because we might not have the
chance to get in
at these prices and we might have to be
paying up
later on so i’m kind of just setting
myself up for
this position if it does um set up
and so when it’s starting to pull back
and like be seen on the tape
we are kind of breaking that kind of 35
level and we’re starting to see it very
slowly
drop the bids and get back into the 60
to 70 cent range where it
got immediately fitted up of the open
when that started to happen i began to
piece in more and more
and more still not majority of my size
but i understand
this is something that i am interested
in because it’s a very defined risk
and i’m not a majority of my position
because the timing
this is kind of anticipating that
something may happen
but i am controlling my risk at this
point and i’m not going to say
you know in hindsight i should be in
full size here because of x
which is just not true and so when it
breaks that opening range high
what i actually do is instead of like
having a stop over there to just get
long
since snapchat was a bit choppy on the
open
um i actually waited a few seconds for
the breakout to tell me that the tape is
clear
to tell me the spread is staying tight
and to tell me that this is a real
breakout
once i get the confirmation i hid in
full size
at that point the goal here for us was
to be able to hold majority into that
three atr
target range and not to you know go in
hindsight and say
oh i should have held here because of x
like we have a reason
and so as it’s moving its way into two
etrs
i’m kind of trimming a little bit still
extremely small
but i do understand that this did just
do two
atr so i want to be trimming a tiny bit
the sale i want to speak about here
is is if you look at where it says pm
and then the right line where i sold on
a down tick
the reason why i did this was we came
into
two atr’s and we’re kind of failing here
you can see we’re kind of here for maybe
20 or so minutes and you know we’re not
trending
as aggressively and we broke over 37
got immediately pushed back down and it
started to develop a range
i don’t want to micromanage but i do
understand the reasons to sell
i sold about 15 of my position there
because
that was a short-term change in tape so
what i did was i put a stop order
for 15 of my position underneath that
consolidation there because i thought
the timing
was that all right i’m selling this
because there
is a change and this may continue
and if it does and i’m consistently
seeing a change
i want to be taken off more and more and
more but i also understand
this is a shorter time frame reason to
sell right
um and then we get the thrust back into
38
and that’s where i begin to sell about
70 80 of
my position yeah so with my trade i you
know talked about getting that feel in
the beginning
and trying to add in that 35 bit but you
can just see i got absolutely top ticked
and you know because of that just have
to get out straight away my average is
now
not the best i just can’t afford to let
this go against me when you get
a really bad feel like that what do you
do
well i would think you know if it ruins
your average
you know the best thing to do would be
to get out just get out right away
and don’t think about whether or not
it’s going to
ruin your average price just get out
that’s not the right price
so i think that’s what i did i mean i
think as soon as i realized i was out
within two seconds and you know
thankfully
it was i managed to get on my average
price but even if it was
you know even if i took a small loss of
that i wouldn’t be two phased it’s just
something that happened and
there’s not really much i can do about
it um
but then yeah you know once we put in
that that wick that got bought up at you
know
high 3460s as i mentioned before i kind
of gauge that as now i have
you know properly defined risk and since
i’m not like
that comfortable yet in adding
on pullbacks i much prefer to get
majority size straight away
or most of my size and so that’s kind of
what i did
and then you know after that just took
some risk off you know to put myself in
the driver’s seat
you know and then just kind of like
setting out targets with trying to hold
majority into those atr
you know targets like 37.5 to 38 and so
that’s kind of what i did
um and then just left on a little bit
and took it off into 38 and a half
just because you know that could have
gone a while
quite a bit more and then at this point
though i’m not
you know considering the variables this
could set up very easy very well for
swing trade
but at this point i’m not looking at it
like that i want to take this as an
intraday trade looking for the trend
and then maybe later reevaluate the
situation see if we maybe get like a
a bigger pullback maybe to the up or
into the 37s
and maybe put on some size here for a
swing trade risking you know maybe a
third or fourth
of my realized profits so this is kind
of the realizations that
we made during this trade and so one
like i mentioned
getting in is very important but it goes
much deeper
as we mentioned participatory size and
confirmation size
next is we were actually trading with a
trader at the firm at this time and he
brought this point up
that finding spots to add with
confirmation on this trade
is not easy and that’s why it’s
extremely important that we could define
that
with the variables that we have in the
database of setups that we have for this
exact
scenario and we can have that
confirmation
already kind of wired in our brain so
we can be a lot less reactive for this
trade
and then the third idea is that the
stats do not lie
it is important for us to listen to them
you know we were just kind of sick of
going back to the end of the day and
saying man i so
too early or iso too soon or i held
a 10 of size for the bigger move and
you know what we realized was we were
saying that because like
we didn’t know any better we were just
reacting to the result
of the trade and so we wanted to
actually have a reason to say all right
i want to be holding to this area
because of
x i have stats to prove this
and this is going to allow me to hold
majority of my position
with confidence here and not go back to
those old habits
these setups come maybe one to three
times every earnings season
so we must we want to be as prepared as
possible
and really deepen this niche to execute
and like bella
mentioned you know these stats are
surrounded by the reaction
which is really important but also i
think bella brought up a good point
about
the fundamental part for the earnings
that i think we could definitely bring
some of that into these these as well a
really
comprehensive job really good
comprehensive job here really good job
here love the way you use stats
love to set up your end you’re trading a
strong stock
probably the strongest stock on the day
you’re getting in there
very well constructed trade excellent
excellent work here
very impressive work yeah really really
good work here guys hey go ahead and
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