Trader Casey,”Bella what do you think of my OCR short at 22.50 today?”
“What was your plan?” I asked.
“I wanted to catch the move from 22.50 to 22.10, the next level.”
“What was your stop?”
“Bella it was 22.52.”
“You probably would have needed a stop of 22.66 for that play to work consistently. So you would have had to risk 17c to make 38c. Not a great risk/reward. Why are you trying to make 40c when there are multiple point trending stocks to discover?”
Ok if you want more insight into the banter on a prop desk go buy my book 🙂 But there is a much bigger point that I made next. Why are you trying to make 40c when there are multiple point trending plays to be in. For example how about BHI after earnings below 46? Or AIG today below 41.50. Or RIG yesterday for an Opening Drive Trade above 55. Or the Flag Pattern Trade in DNDN from 37.50 to 40 the other day. Or that AMZN 10 point plus bounce recently. And on and on and on.
Everyday during earnings season the market gifts us these trending mutliple point plays. They offer a larger margin of error. You can wuss out, F up a few entries and exits, still have an awesome day while controlling your risk in these plays.
The trader with whom I was chatting was a former D1 baseball player. ACC caliber. And I left him with this thought, “Do you want to be 3 and 1 or 2 and 2 while batting?” For you non baseball fans, your batting average climbs dramatically when the count is 3 and 1 as compared to 2 and 2. While trading do you want to be in set ups where your edge is largest or much smaller?
Now one of our interns is bugging me about a play so have to go. Think he is going to ask me about buying AIG at 40 and kicking it out at 40.15 for the old fade off the level scalp.
Mike Bellafiore
author, One Good Trade (Wiley)
3 Comments on “A Conversation on a Prop Desk”
multiple point plays are cool. what happens when you’re not in the right plays, how can you switch to the right stocks efficiently. take today. MON and POT. I’m focused on these.
MON-gap up and as long as it opens above yesterdays highs and trades higher, I am long. No chop!
POT- above 115.36 (yest high), I am long. Got long tier 2 goes up and consolidates above 115.50 tier 3 time. Gets above 116 (don’t be a wuss). Markets breaks down…….. (but this is a stock in play!). Two failed setups. Hit out below 115.30.
How can I then switch to something that is going to make me money? Do I switch my bias to short even though things have been breaking out this August? Or do I lick my wounds and wait for another day?
“You probably would have needed a stop of 22.66 for that play to work consistently.”
Quick question: What made you pick 22.66 as the stop loss? What makes this price the stop loss that allows the play to work consistently?
Dax,
12 years of trading experience builds trading intuition. I really cannot explain why that is the stop it just is. Based on that stock, in this market, on that day, at that time, that was the best stop.
Bella