You develop an idea to get into a very strong stock. But you just are not sure how to execute the trade. Has that ever happened to you? In this video, two traders share a comprehensive trade entry that allowed them to profit in $PINS, a very strong stock.
View Video Transcriptokay so you develop an idea to get into
a very
strong stock but you just aren’t sure
how to execute on this trade
ever happened to you 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
in the playbook in this video two
traders from our desk
share a comprehensive trade entry
that allow them to profit in pins a very
strong stock let’s get to work on
sharing these important trading lessons
so you can grow your trading account
[Music]
so the idea behind this trade is
essentially um a continuation
after all-time high earnings beat and
over the past couple of weeks we really
saw
xlc specifically the social media names
really over perform
or outperform um and names like twitter
were pushing prices they hadn’t seen
since 2015
and snap just had a massive earnings
beat as well
a few days prior that it trended for
multiple days
not to mention um in their earnings
report pins mentioned that
they were benefiting from the recent
social media boycotts
um and so that just kind of added to our
idea as to why we thought this could
really trend
so the context behind this trade is that
we’re looking for a triple beat earnings
which is a beat on eps revenue and in
this case pinterest we’re looking at
user growth
um as well as we’re looking if they
release full guidance it’s a positive
but not
necessarily a make or break for us um
we’re
more so looking at the reaction and also
we’re looking for something that holds
20 25 of its gap so like from after
hours in pre-market um
for our reasons to sell we were looking
for a changing character on tape
so essentially with this trade we want
to see buyers really willing to step up
right because if we’re looking for two
and a half three atr
like if buyers aren’t constantly looking
to take prices higher
and another thing we’re looking for is a
low volume buying as we move higher
and sellers beginning to take control so
each move higher we’re really weighing
like relatively is buying volume still
there
uh just following that same idea of we
if we’re looking for so much we need to
see that buyers are really involved
uh again going off the same idea a
breakout and trend over pre-market range
followed by a break lower
so we want to see buyers able to take us
over that pre-market range rather
quickly
and defend it right um if it’s gonna
establish a new range and trend
there’s um there’s a very low likelihood
that’s gonna happen
after it say like spends 30 45 minutes
inside
like opening range and breaks low day
multiple times
after it’s broken and moved higher we’re
also looking for a lower high so this
isn’t necessarily a reason for us to
flatten the entire position
but it’s an indication to cut size uh
specifically we’re looking for
the five minute um at 10 minute and 15
if the lower high is coming in those
time frames
for us we cut like a quarter to a third
of whatever we’re holding at the time
so going into uh pinterest’s earnings
report itself
eps it reported 0.13 versus
0.03 uh revenue 443 million versus the
383.5 million expected and daily active
user growth
at 442 million versus the 436.3 it is
expected also they announced that they
expected fourth quarter revenue to grow
by 60
year-over-year so um the guidance was
there as well
and in terms of uh fundamentals one
thing we’re really paying attention to
is that atr
that 2.61 because that’s the cause for
where we expect like a turn to happen
and
our price targets as well yeah so now
that we’ve gone to the variables and a
little bit of the fundamentals
i’m going to dive into the stats behind
the idea and the specific trade
so with this idea we’ve been collecting
average stats for this very specific
criteria in context
and those stats are in the form of atr
like brian just mentioned
on on these stats we want to collect
high a day from open low day from open
the average intraday move
and the average atr gap up um these we
can use as comparisons for future
um contexts that are similar to this and
because of these stats
we were able to have a full pt of about
3 atr
for our predetermined core and just
briefly going over the outcome of pins
the gap up was greater than average
there was also a 2x implied b
and that’s similar to what brian
mentioned earlier where it’s not a
requirement
of this setup but when you get a 2x to
3x implied b
it’s a big big check mark in your favor
and it when you say you have a full pt
of roughly 3
atr
what do you mean by that and how did you
determine that that three atr will come
from
let’s say price moves down one atr or
half an atr in the open
we’re looking for three atr from that
low of day because on average
for these specific contexts our average
low a day tells us that
it’ll pull in roughly half an atr your
average high of day is about
just over two and a half atr from the
open and the average combined intraday
move
if you include the low a day is over 3
atr
so for us to get most of our
predetermined core off
in front of 3atr is a reasonable price
target for this idea um
obviously it could shoot higher but
that’s what we uh
aimed for yeah and what are you doing to
come up with these stats
um we’ve been tracking earnings that
fit this criteria and we’ve been just
collecting data
um and just updating it and creating
averages that way we have stats to back
our ideas now
you’re doing this in excel or oh yeah
yeah it’s an excel sheet
um right so the implied b that was a big
big check mark in our favor
um that can sometimes make the
difference between an a and a plus trade
um and then the results high of day made
it about 70
of the way there low of date was very
very tight it barely pulled into the
open
and the intraday move was about 60 um of
that
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so this is the all-time high context
this shows prices from ipo date
um and obviously we were already at
all-time highs before this so we got an
even bigger gap coming into earnings
and this is the after hours and
pre-market context
like brian mentioned earlier we want to
see price hold up in the top 25
of the range right this is a pretty
massive gap up
and over six and a half atr gap up and
for it to hold within the top 25
into the open indicates a lot of
pressure buying pressure um
and that will usually lead to price
discovery or price testing higher
and that’s all we need to know for that
specific um
piece of information so just a few
things i want to highlight right here
before i go into the next slide
price opens right above 64. 63 and a
half is right here and then
this dash line is our make or break um
for the most aggressive context on the
idea
so 63 to 62.8 roughly was about half an
atr
from that opening price so now i’m going
to go into the scenarios that we were
willing to take
because at the end of the day all we’ve
shown so far is an idea
and we needed like a playbook set up
within this idea to take and manage our
risk on
um and so what we like to do is you plan
out scenarios within the most aggressive
context
where we can get our size on and we can
manage this effectively
so we had three three scenarios we were
planning um
on taking on this most aggressive
context into the open the first one is
the one that was backed by stats
um the pull in to 62.863 coincided with
about half an atr
so that would be a great make or break
point for us to take
this is just a classic pull-in trade and
if we go back to the price action here
um you’ll see that if price pulled in
here um when we get these pulling trades
with very light volume in the open we
tend to perform at our best with this
specific
playbook setup because price will often
pull in
and quickly turn through the open which
allows us to have really good prices
and from here we’re in a position where
we can just see if price is going to
hold and accept higher
and if so we can add and have our
average still be somewhere at the bottom
in middle of the opening range so like
brian mentioned if we can quickly get
above pre-market high and hold
we have a great average for our trend um
for the trend in our core
um so that was our top setup that our
most aggressive setup that we wanted on
the open
and two other setups that we also had
planned out because we know that like if
we don’t get our most aggressive setup
and it’s still an idea we still want to
be involved um there’s
since price did open right above 64.
there’s a chance that price pulls in
that 64 it holds
and then for this trade it’s very tape
based we look for
a turn on tape um offers to lift that
way we can lift
uh risk that 64 inflection and then the
last scenario that aligned with this
most aggressive context
um would be
the failed breakdown so let’s say that
you did have
that 64 hold on the open and then
price moves away moves away from 64. it
comes back
then breaks down under 64. but there’s
just clearly no selling under 64.
this will often lead to a failed
breakdown because when price quickly
reclaims
that opening bid that it failed to sell
underneath um
price will tend to like move higher and
test higher from there
and so that would be our last scenario
that would we would want to get involved
in
because if price does sell underneath
that opening low and that make a break
point
we no longer think it’s the most
aggressive context to be trading yeah
guys this is really good
this is a really good example of being
very specific about what you’re
looking for this is a really good
example of taking an idea
and turning it into a professional
trading opportunity so like i mentioned
earlier uh
snap was one thing we were really
looking at um
this is something that joe igor
presented a week ago
but essentially i actually took this
trade um and it
went to that full pt of 3 atr and so
this is just adding confidence to why we
think pinterest can really go
as like it’s the same industry we’re
seeing very similar stats and the
pre-market and after hours are showing a
very similar range
so 15 minutes into the open uh this is
when
pinterest has held that 64 level a few
minutes in
broken lower reclaimed and now broken
over that 65
66 inflection and held over pre-market
range
and so during this time when press holds
that 64
we enter on uh to about two-thirds size
risking that held bid once that drops we
head out
and we are waiting for now a change of
tape once we see 65 break back over and
confirm
that we enter starter size again and add
full once we see the turn and buyers
defend
that 66 over that pre-market range and
so
right now i want to talk about um the
plan versus
how we manage expectations so like said
real quick
uh the plan going in was that 64 bid
holding wanting to hit in 60 to 70
percent of our full size
and final ad on tape confirmation as
prices skip as we break over 65.
now that most aggressive scenario didn’t
play out
and so at this point we knew we had to
adjust our plan
uh once that 64 broke and held however
we’re broke down and reclaimed now we’re
looking for
two scenarios either that change in tape
on high volume buying
uh which is the one we actually got or a
breakdown to that bottom end of that
range closer to 63.
uh like dylan mentioned earlier because
this is an a a idea we still want to get
in
just just because like the most
aggressive scenario doesn’t necessarily
play out
doesn’t mean we want to miss the entire
move
so our thoughts after the 15 minutes is
at this point we’ve already sized in
because
we’ve seen the confirmation of the idea
and that strong break and hold of that
pre-market high
this coincides with about one atr from
the open as well
so we’re looking to see are buyers able
to hold this
now that price has moved away from that
pre-market high and is now holding
higher
we have a great average to manage our
position on the idea
our goal isn’t necessary necessarily to
continue adding into each consolidation
or setup that comes
it’s to manage and the ability to not
micromanage the position as we progress
higher into like one and a half to atr
and so forth
yeah so now we’re gonna go 30 minutes
off the open um
from here our point of confirmation was
this how quickly we can break
pre-market high and hold and so we got
that um and then price started
flagging right underneath 2atr and for
us this is just super bullish
um because at this point we’re not going
to try to add into each of these flags
consolidations
but we really want to see how aggressive
can trend continue
and the way we’re monitoring that is um
the higher time frames and volume how is
volume looking at each leg and how is
volume looking on each pullback
relatively
teach consolidation because you want to
see it dry up in those periods i
wouldn’t want to see
higher volume selling on each pullback
and so that’s what we got
we got to move into 69 um two atr
which is two roughly two thirds of our
price target you can see three atr’s
about 71 and a half which is what we
were aiming for
and then um at this point we were in the
driver’s seat of our trade we were still
seeing volume come in on the buy side
um and we’re just monitoring trend um
because
at this point real time we were just
making distinctions of
what could get us out of our position
what could like
surprise us that’s what we’re just
talking through real time and one thing
we did notice
is that with each high of day made they
were still shorts entering
right it wasn’t clean breakouts when mo
when price was able to reach that
all-time high
you would see sellers step in we would
break back down
and then hold and then we’d move higher
and so for that for us that doesn’t tell
us to sell anything but it just shows us
how we should manage our manage our
expectations
on this trade because if they’re willing
to short at 67 which is already an
all-time high
um they’re probably willing to destroy
the 68 and 69 as well
so that just tells us that if we were
banking on a high velocity short squeeze
before
we can’t now because if we do bank on
that we might we’d mismanage this trade
and at this point we’re not focused on
what playbook setups to
take we’re focused on how can we monitor
trend and stay
in the driver’s seat of this trade so
now this is pinterest an hour after the
open
so the most aggressive scenario didn’t
necessarily play out
we see a bit of a change in character as
we pull back into v wap
this isn’t necessarily alarming yet but
we’re wanting to see
what is it going to do now um as price
stays around view up for a while we see
a bounce
and then this is the change in character
where bids are now no longer able to
hold prices higher and sellers step
lower once we’re able to then break
under that v-wap
we see this as a clear change in
character and the
the change in tape was really clear as
well um
also as you can see on the move higher
there’s really no buying volume as well
so that goes into our reasons to sell
like i mentioned
uh we were looking for that bounce and
as long as volume didn’t necessarily
pick up on the sell side
or significant time wasn’t spent at
these levels or at uh
closer to 66 we’re planning to hold the
majority of our position for still that
three atr mark
however once we saw that those reasons
to still come once we saw the change in
character
we realized that now the likelihood of
that full price target
coming is really low and so we cut
about uh so for me i cut about a third
of our
my position um and we were looking
for now how do we react to that 66 that
top end of that pre-market high range
um if buyers are not able to defend that
that’s our absolute make or break point
and that’s where
we think the idea shot yeah we’re gonna
run through a few moments uh on tape
that we think were very very crucial to
this trade
um the first one is going to be one of
the playbook setups that we just
mentioned
which was the opening hold um and then
the next one
is going to be the failed breakdown um
like brian mentioned even though we took
that first
hold of 64 that one didn’t play and our
next playbook setup of the failed
breakdown played
um so here you’re going to see it open
64 pulls in
tape is still speeding up here you see
pretty like on the open there’s a lot of
volume being done and so the fact that
we haven’t broken 64
right on the open here was a great sign
of information for us
and so that’s just a really good rr
point for us to hit the idea in
um and so that happened price started
moving away which is what we want to see
um because at this point we just try to
see where can we get positioned and then
we’re going to react later
to how price can cast higher
um got an influx of volume there price
will keep moving testing higher
um and it actually makes a pretty lo it
throws out a very very deep wick higher
um and then it comes back
so that’s that’s a piece of information
for us the fact that sellers stepped
down up there but from here we’re not
going to micromanage it we’re still
watching that opening bid at 64. price
comes back
and we start to hold it again right this
is this is what i was talking about when
64 holds multiple times in the open it’s
a big inflection
and we’re willing to risk off of it
and then from here price will actually
move higher again for a second
and then it’ll fail so i’m gonna go to
the when it does fail
here the bids drop 6380 flashes on the
tape
but clearly under 64 it was not sold
because if it was sold underneath
opening bid that should quickly move to
63 and a half and 63
but it it was even it was even faster to
reclaim and pop to new prices
price is higher than 65 um so once we
saw that
that was a large failed breakdown in our
minds and so that was
the moment where we hid in our
speculative feeler size because at that
point we want to see can price now hold
over 65 and a half and n66
and that’s exactly what happened to play
out um because
at this point we want to make sure that
we can get into prices where our average
is still
within this opening range because if our
point of confirmation is up at 66 66 and
a half
we don’t want to have our full size at
like 67. that would just put us in a
hard position
in terms of managing risk and being
comfortable in the trade
right exactly and at this point here
we’re just looking for it
can 66 hold our buyers stepping up right
we’ve seen the confirmation that change
in tape
um like dylan mentioned we see that
buyers were definitely active
inside of opening range um but here’s
the turn that we were looking for
all right so we break back under 66 how
aggressively is it being sold
and as you can tell not really at all
right we’re holding
we’re slowly moving lower um and
it doesn’t seem like by bids are really
dropping at a fast rate at all
um we’re holding holding holding top end
of the range
volume is also very very light on
smaller time frames on this pull in
which is something that we love to see
when we get a strong break higher
so this is where we see it start to pick
up again
and right about here i believe is when
we get over 66
and so to us that’s that turn that’s
that confirmation
um and now we’re looking for can 66
continue to hold and can we push higher
we want to see that higher day broken
relatively quickly
i think that does happen in a few
minutes here
when price struggled to pull in and
pulled in very slowly
right there and then is it’s so easy for
it to skip prices higher
it tells us there’s still a lot of
buying pressure higher
and then right about here is when we
break high day
so i’m gonna go into my trade management
obviously we did take the
the cut in the open on 64. hidden
speculative size
risking um a hold back and break back
into the bottom end of this range
um i took off about half just to cover
my risk and cover some of this loss down
here
and then once we did confirm i i ended
up just putting on my full size here
um because in my mind that was a very
strong tape turn when we
pulled into 65 50 and we were
immediately bought up
um because that’s i’m a smaller time
frame trader so
i like to get my risk on in like one of
these spots and i got my risk off fairly
quickly
um that way it can get down to my
manageable core and then i added 10
here just because i know the way i like
to manage these positions
is i like to pay myself um and moves
higher
um so i realize that with my average i
can still add a little bit
and give myself room to take off more
sales when price moves higher
that’s what i did here and then when we
came into just under 2 atr the flag that
i had mentioned
um i ended up just taking more off
realizing that
price could stall out here and this is
just a good spot to take off some risk
and then once we failed the balance got
sold under view up i took off half of my
remaining core
and then tape really did change here
when zeller stepped down um i just
flattened
got out of the position realizing that
even though we were
so convicted into this idea and our
target was three atr’s
we want we felt it we were very excited
about it real time
um we understood we had to adjust our
expectations and we weren’t going to let
this
um destroy us on the day dylan and i do
trade a little differently
um i am more of a higher timeframe
trader so i like to be in the driver’s
seat and
kind of just stay in the driver’s seat
at that point uh so
we took the morning cash flow and took a
little bit off into the highs
and got out for a small winner there
really nothing and then as we saw that
turn and that change in tape
entered two-thirds of my position seeing
the 65
tape accelerate and once we got over the
pre-market high held
for an extended period of time and
pulled back into
right under that or so sorry once 67
held i entered
um that is a bit of a mistake for me i
think i should have been entering into
that 66 turn that we were talking about
um but those opening range breaks and
hol
like breakouts and holds of a new range
is something i’m definitely still
working on
um so i got i cut a bit of the position
a bit of that ad as we broke under that
range
again like i think that’s a mistake
something i’m working on one thing that
i’m curious to hear your feedback about
is so you were
looking to get three atr
yeah what about the fact what about time
though so
you know something gets to two atr
really fast and much faster than you
expected somebody to get the three t
three atr does that breed a trade
decision
yeah is it not is it not just the atr
which is which is movement but is it
also
time no definitely um one thing we’re
really looking at is
at those levels like how are we reacting
right after that
um are buyers aggressively stepping up
or is it just shorts being squeezed out
um because if we’re wanting to see that
3atr right we really want to see like
buyers continually stepping up and
building a range building value and
moving higher
um if we see like a snap like say a
two-point snap
like higher um i would probably take a
little more off
into that and then at that point watch
how we’re reacting um because
we’ve seen a lot of times where we throw
in like a deep wick
higher and like buyers fail to hold that
price and then a
like quick 1.2 point drop after that
yeah and with that point about time it’s
that’s something we’re really really
looking at
right on the open and that point of
confirmation because for us
how quickly we can get that point of
confirmation can tell us how
aggressively we can
manage our expectations on the trade
like if we had taken maybe
30 45 minutes to get over 66 66 and a
half to confirm the trade
we at that point we might have already
adjusted our expectations and our pts to
think
this probably won’t make it to 3atr but
because it got over that within
seven seven minutes of the open um we
wanted to see we wanted to make sure
that we’re being patient enough to see
if buyers can step in at each accepted
price
but yeah that’s definitely a big thing
we were watching and i think the other
thing you want to look for is
that buying at the whole numbers so
something goes up two points
man that’s a lot real fast a little bit
more than i thought
and now is there going to be around
these whole numbers more buying
at higher prices than i thought so i’m
looking for
evidence that this can go
up go up higher get to my 3 atr
and there’s there are certain variables
that go into that and so when you can
spot
the move that’s too much and then the
buying that’s
too aggressive at higher prices that
leads to some of those moves
right yeah right you didn’t see that on
the tape if
you if you went back and watched there
wasn’t really that buyer
who was just really stubborn buying too
high
too aggressively uh when it when it
tried to pull in on
around the whole numbers after that we
see the lower high
on the changing tape i head out the 1 6
and then that final make or break is
that 66 that i was watching
um once we spend time under that i’m out
and so some points that we’re looking to
improve on
uh one of the things uh is expanding our
statistics on
this trade specifically i want to ask
you guys this
to me there’s a best trade
based on what you guys described what is
it
uh for us i believe that’s that opening
drive
um on these triple b earnings yeah so
you had your idea let me be clear sorry
so you had your idea this could could
run this could go up a little bit on the
open
but then you said really smartly hey
i’ve gotta make this into a trade i’ve
gotta
see it i’ve gotta be able to add more
than my
you know my personal opinion to this
particular idea
and there was a moment that was
best based on everything that you showed
and described and talked about
that you can turn into
the best trade of any of these
what what was it i believe it’s the turn
at 66.
i would say that hold that pre-market
high and that buyer stepping up
is probably where we could have really
sized up
i would say yeah that was a good turn
and i think the failed breakdown we had
planned out we could have managed that
scenario better
for better prices on the idea
where was that that was when we broke
under 64.
yeah you know and it’s interesting
you’re building a trading business
and i mean maybe i should speak more
about this at a later time
because i have some pretty strong
thoughts about
how important it is to actually build
the trading business but part of
building a trading business is being
exposed to ideas
that can work but then you being able to
figure out
where you can make the most money
and so when you go back in your review
these trades you need to figure out
you know where can i make the most money
where was the best risk reward trade
for this opportunity so i’ve got two or
three trades that was inside of this
opportunity you know but where were the
spots
you know where were the specific spots
where i could have been bigger
and i say this a lot to experience guys
who want to make a lot more money where
specifically within your trading system
could you have been bigger so you made
more
and so i don’t want to tell you the
answer in my trading brain
that 64 area was really the place where
you can buy against that
and see if it will run and make that
into an a plus trade
i don’t want to tell you that’s the
right answer and if your trading brain
shows you 66 as long as you’re just
as long as you have some reasons for
that that that’s fine
but you going back and understanding
understanding for your trading system
where you could have
made the most money where you could have
spotted the best risk reward
opportunities
is you building your trading business
which is so important
now i think a lot of times people go
back and they’re like well i could have
made more money here and they’re not
specific enough about it or
they point out a trade that’s not really
within their trading system or
you know they don’t really take the time
to understand
you know they see the trade and they’re
like well i could have made more money
and and this was a good setup this is a
good setup
which was the best setup that makes a
lot of that makes a big sense like we
make money on our best setups
to go off that we we are collecting we
have a chart book a shared chart book
going of each of these setups
for that for a similar reason we want to
make sure that like with these
are there similar spots within these
that we can look to add
our edge behind but uh yeah we’re going
to keep
analyzing and looking for those spots
that we can definitely get big in
yeah i didn’t talk much during this
review and that’s because you guys did a
really good job
it wasn’t much to say other than for me
to keep my mouth shut and
start listening to you guys so very well
done
think about some of those things but but
but excellent work here guys
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* no relevant positions
