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View Video Transcriptin this video see how a good trading
strategy sometimes requires a bit more
work will be super profitable hi I’m
Mike bellifiore 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
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for you in the trading community see how
a good trading strategy can be
transformed into a great one just a
little bit of work let’s get to work on
improving your trading this playbooks
set up trapped longs at all-time highs
second day play is a trade setup that I
get excited about living on the west
coast I’ve been trying to create simple
playbook setups that are high risk
reward with less pre market planning as
I’m here in Washington State the market
opens at 6:30 a.m. this playbook is
inspired by working with fellow interns
one being Brian helping me understand
the edge and sector rotation and Joe who
helped me interpret where the edges in
this trade and how to properly control
risk this day’s June 24th for the past
five days the tech sector has been
leading with unusual strength so after
five days of strength like this will be
likely to see sector rotation which is
the movement of money invested in stocks
from one industry to another as
investors and traders anticipate the
next stage of an economic cycle and
these cycles usually come in four stages
as we see there’s a market bottom a bull
market a market top and then we see a
bear market o say the big picture so spy
was them consulting with a range I
wasn’t able to break over the three 1460
level as a acted as resistance multiple
times and this is because maybe that
there was another wave of coronavirus
coming in some negative economic news
but we just weren’t able to make another
move higher and then for the same market
internals for the morning session in
which this tape trade took place I’d say
about 80% of the ticks for negative VIX
was moving higher and ad D was moving
lower so there’s a lot of bear market
all right here’s the criteria for this
setup so you want to see the stock
breaking out to all-time highs and when
it’s breaking into that all-time highs
you want to see on weak or lower
relative volume
this has edge because it shows that
there isn’t interest by the
institutional buyers or the smart money
and basically I see the smart money as
investors central bank’s funds other
like financial professionals it’s
usually the group that’s heavily moving
the market up and down another piece of
the criteria is price must break low a
day on the second day and that’s where
your entry is and this has edge because
long as we’ll be trapped from the
previous days likely like the the
breakout trader is trying to play the
break into all-time highs in other parts
of the part of the criteria is you want
to see selling volume into the break and
after the break this is going to have
edge because institution will be
liquidating their stock at all-time
highs is to take profits and Long’s are
likely to be place their stops at the
previous low a day and then the last
part of the criteria is you want to see
the sector agreeing with the move along
with the Eternals internals agreeing
with it relatively weak volume into the
all-time high have you thought about
potentially being more specific on how
you’re defining that I think a good way
I could define that is on a daily chart
I take the volume from the previous say
two months and if the volume on the day
that it’s breaking all-time high is less
than 50% of that average then I’ll
consider that lower relative volume okay
great
I really like yeah I like you being
specific there okay on the left side of
the screen we see the Shopify on the
daily and you see that high of 928 that
and on the right side of the screen I
highlighted it in at oval and that’s
that day so where shop is breaking out
two all-time highs and then on the next
day we see a break of all-time the day
that it reached
all time high and we see big volume
coming in shares are getting puked out
and we see a big move lower and that’s
probably like a that’s a $20 move lower
and then we see price move back up a
failed retest and we see it wedge up
near the yesterday lows and a
continuation lower and these are both on
big selling volume follow-up question
have you thought about defining the
all-time highs you’re most interested in
or said a better way are you thinking
about defining what a significant
all-time highest for example something
could just be making an all-time high
every day for 30 straight days slowly
sort of going up compared to hey at
stock has a tremendously difficult time
getting above a particular level and
finally does are you thinking about ways
to differentiate between all-time highs
yes I think a key point to differentiate
it for this setup to find the reversal
to all-time highs is the volume on the
day that’s breaking out to all-time
highs totally understand and really like
the way you’re thinking about the volume
but could you be also thinking about the
importance of the price so all-time high
is a reflection of price and then you’re
doing an excellent job with thinking
about the volume but certainly there’s
going to be different layers of
importance there’s gonna be there’s
gonna be different breakouts to all-time
highs and significance based on price
based on how hard it was to make that
new all-time high how important that
resistance level may have been or that
resistance area may have been before it
made that all-time high and grading
judging how significant just based on
price just on price just on price the
all-time highest
and maybe even thought about that yet
and that’s fine
but maybe we’ll agree they give that
some thought yeah that’s definitely
something I have to think about but that
I understand that makes sense okay thank
you thank you if you want to learn three
real-world setups that our traders use
including this simple setup that we
teach all of our new traders and the set
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education here’s the trade management in
the trade in a Shopify trait so we see
that opening drive lower just shares any
puked out huge volume and then we gonna
move back right up to the WAP and price
starts to wedge and that’s why I wanted
to put my first entry risking the
previous high which was around 905 right
up right above beat WAP and I was
looking for a one minute one minute
candle to close my reason this my reason
to sell within this trade is because
price got down to that 885 support and
buyers think buyers coming in on the
tape and I really just want this is a
very highly priced stock so just a
couple shares can go a long ways but I
definitely looking back at this I should
be holding a small position just in case
the next there’s another move lower as
on this day I remember that spy was
continuing to move lower and this was a
definite catalyst moving along with spy
but I should be looking for a higher low
to take off my last core position or my
last small position and then here’s some
other recent examples within the last 20
days of the same exact setup here we
have Apple this is one of the first
times it’s breaking out to all-time
highs so we see a big gap higher and
then on the next day
on the on the day was breaking out two
all-time highs it doesn’t really have
that volume that keep pushing it higher
so I needed that pullback to find more
buyers and we see that on the opening
drive
so Apple creates a range and then it
breaks below that yesterday low and has
a continued move lower throughout the
day same thing Nvidia breaking out two
all-time highs we get a we also we get a
break right on on the first candle of
the day it gets bought back up we get a
failed move higher and then we get a
break down and retest and a continued
move lower on elevated selling volume
and and here’s another example up also
on Apple we did it we get a break and up
higher into all-time highs we get that
break of previous low a day and it fills
the gap and price reverses I think
another part of this trade and a lot of
traders use filling the gap plays and
that’s why this can have some more edge
in it because it’s kind of filling the
gap kind of gives traders a place to
enter and a place to exit and if you
combined this strategy with filling the
gap strategies then that can add some
edge to your to this trade yeah I really
want to highlight that elevated volume
if you circle that again I really like I
really like how you’re adding that as
one of the variables you’re seeking to
see to confirm the trade that’s that’s
terrific and you know really what you’re
doing right there is you have a thesis
right your thesis is hey if something on
low volume puts in an all-time high and
then gets below the low from the day
before then this trade is going to fill
in the gap or go down or something like
that that volume that’s coming in is
confirming your thesis is correct
there’s more people who are agreeing
with you which is always what we want to
be doing in markets we’re not that
concerned we’re one player in the
marketplace you’re one person
marketplace with trillions of dollars
being slung around every intraday right
so hey if I can get some more people on
my team if I can get some more people
voting that I’m right if I can get some
more people on my side I can build
trades that it’s gonna make my PlayBook
stronger and my career more sustainable
really like how you highlighted that
elevated volume the main part of this
trade I just think is really cool is it
doesn’t take too much pre market
planning because all you have to do is
set alerts at the previous day low a day
and I see it as a high risk reward play
yeah in common if I could just jump in
again I would judge how important that
lo-ove day was as well I think about
which lows of day are gonna be more
significant and if they are putting on a
little bit more risk as you get more
advanced we’ll talk about that but I do
want you thinking about right now that
not every low of day not all lows of
days are created equal not all time
highs are created equal and you
understanding that and treating them
differently with risk is gonna be really
important for instance let’s say we had
a triple top in a semiconductor stock
and let’s say the semijns have been
really hot and really overbought and we
finally get above the triple high in one
of the semis we don’t get the volume
that you would expect in a breakout we
get that relatively lower volume we get
below the low of the day the semis are
rolling over that low of the day
actually is a more significant support
level from that from that
that short-term period I would suggest
that’s a trade you probably want to put
more risk on then lots of other
scenarios you and I could dream up of
right now because the fail breakout is
more significant there’s gonna be more
people trapped and it’s gonna
potentially cause it to go down lower
faster so I want you to start thinking
about that now but but but really good
support absolutely that sounds like an
A+ setup to me
going along with what you said that’s
absolutely an A+ setup and if you bring
in factors maybe of a pre market levels
that could be another specific factor in
you defining what a lowered day is so I
just want to talk about so when I see
this trade I want to take it every time
cuz that I want to be able to track the
win rate and understand if I can get big
in this trade and if it works for me I
see this as a high-quality setup with
edge and if I recognize this in
real-time it’ll allow me to scale as a
trader
finding the easy money I define that as
just alright but putting the checks in
your favor it’s not like trying to find
something that isn’t there
but looking at the market from a view of
finding edge and then I will I’m gonna
build a filter and look through stock
stirring after-hours to find what was
hitting all-time highs and figuring out
which trades I would want to make within
this playbook strategy and just a little
quote that I like is to do well in the
stock market you’ve got to stop doing
what got you into trouble in the past
and create new and far better rules and
methods to guide you into the future
that’s bad who said that
who wrote that um I’m not sure I don’t
where do you no no I see that you’ve
quoted Mark Douglas though and I have to
sort of ask I mean you you’re coached by
Debrett’s t-bar beverage bro it’s
written a bunch of good books you know I
think I’ve written a couple of good
books too no mention of us yeah I mean
here we are do you know a little sleight
here dr. Steve Margo myself now no yeah
that’s my bad I completely agree
completely kidding all right anything
else we should be talking about
obviously like within this trade I
should be putting in tape like seeing
the breakdown on this seeing what it’s
what the tape is doing at these lowered
a levels and wear resistant or support
is found that’s one thing I think could
be added 100 Sun I’d say too with with
the breakout so you want to sort of be
watching the tape when it broke out see
if it’s heavy
see if it’s having a hard time going up
and then a hundred percent seeing what
the tape is looking like before the low
of day and after the low of day break is
very worthwhile for you to record your
screens go back and watch that and pick
up the times when that stock is more
where the tape is giving you readings
that it’s more likely to continue down
giving you information it’s more likely
to follow through you’ll get better at
that and if you improve your tape
reading skills around this idea which is
a good idea this is a good idea to
straight you’ll you’ll be able to
develop this into a discretionary trade
for your play book hey go ahead and
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