In this video, we discuss a popular trading strategy in a strong market. Two SMB traders and Mike Bellafiore review tape in Target for this Dip and Rip trade setup. Let’s get to work on sharing these important trading setups so you can grow your trading account.
View Video Transcripttoday we’ll be showing a dip and rip set
up
from target on 11 18
after they reported earnings
[Music]
um the earnings report was much more
positive than expected they beps
by a dollar and beat on revenue
um comparable sales were up
20 above the estimates and
gross margins rose uh 80 basis points so
a lot of positives for this they were
talking about how they’re online
sales and business is strong even during
covid and they’re happy about that
and that’s a major reason for this gap
up
um this top left chart shows the
five-minute chart
with this gap up from about 163 dollars
to 168.30
as the high in the pre-market
and we’ll be watching how this reacts
off the open
how it pulls into a major support level
at this 160 450
from the pre-market and how we really
hold there
and then turn around to the upside
so we’ll mention this had 50 times arvol
on this day off the open which is
something very attractive for us the
higher the arvol the more the higher
chance that we have an
outsized move to either direction for
outsized wrists to reward
and that’s a really big reason why this
is a name and play
um alongside the gap up in strong
earnings
so we’ll play it from the market open
here opening up at around 165 dollars
and like 50 cents kind of on this
support level which we’ve been playing
around in the pre-market
first minute is pretty slow um takes
some time for volume to come in
might be a slightly delayed open
yeah this did take a minute or two to
open up
so yeah we’ll just show the first minute
or two on the tape here to
show how it kind of works its way down
into um
the next support level at 160 450.
you guys a little bit more advanced what
you mean by that is
it’s taking a couple minutes for the
specialist to open up the stock
so it’s 9 30 but it’s
still not trading at full capacity
exactly the the majority of the volume
that can come in
hasn’t really gone through yet from
those bigger
uh desks or fund managers and if this
was a nasdaq stock
you wouldn’t have to check that the
order flow would just come
right in at its highest peak starting at
9 30.
but when you’re trading a new york stock
exchange
listed stock sometimes it doesn’t quite
open at 9 30 on the dot
takes the specialist a little bit longer
to figure out how to match some orders
for the open
for the opening and balance and after
that
then they’re ready to rock and roll
especially on a day like this where
we’re doing
so much more volume than they’re used to
pairing on the open
good point good point houston that is
one thing you want to
check though if you’re looking for an
opening drive
trade and you’re in a new york stock
exchange listed stock
you do want to make sure it’s actually
open there are some times when you think
it’s open
and you know it goes down 50 cents
and it’s not quite open and you’re
reacting to that 50 cent down move
but the volume is not there so you are
in jeopardy of
a quick snack back that surprises you
because it’s not really open or worse a
snapback or worse
so absolutely right it’s really for the
newest guys
make sure the stocks open first
yep and that’s why you’ll see i don’t
really take a trade in this until the
volume comes in
and i’m sure that this is getting ready
to trade
and i’m sorry the way you you tell that
is nyse will come in
on the bid and the offer and also you’ll
just see the
prince going a lot faster in in the box
exactly so we’ll see the first major
pull in here to 160 450 where i’ll have
a quick entry when it pulls into that
level
really respects it and snaps back
quickly
so
we have the nyse
orders in there now definitely more
volume going through
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we can see right here we’re coming into
the 160 450
and we never even get below that level
the bids hold right at 55 cents
can’t break down start to move back up
20 cents
and this is what gets me long at this
160 480.
there’s a lot of variables in my mind
here strong gap up in the pre-market we
did hold most of the gap
strong earnings dip and rip setup has
been very common recently
and just knowing that since that support
level was respected so quickly and so
well
uh once it was open and the volume came
in it really gave
me good confidence to hold this
for a move to the upside risking that
164 450 level
and you’ll see here i’m putting in my
hard stop at 164
42 so if we get a flush under that
50 uh level i’ll take it all off there
but otherwise kind of holding this
thinking we can get a move back to 167
kind of this mid pre-market range
um take profits into there and then see
if this can really trend
to new highs hey matt how’d you come up
with 42 cents
so 42 cents was a little bit arbitrary
in the sense
that 164 55 held but i
often know on these opening drives that
they’ll test a little bit
above and below levels to get out the
weak hands
especially when it’s moving more
volatile on the open
so i often like to give myself just a
little bit more room
over that level and see if we really
kind of hold below that level
because if we just wick through 55 to
like 50 and then come back
and then there’s buyers that’s good but
if we really get under that 50 cents
uh it by like at least like eight cents
i got 10 cents then
then the trade is kind of over to me uh
i just want to give myself that little
bit more room
because this type of trade can have such
outsize risk to reward
risking like uh 30 or
30 40 50 cents looking for four
five six points so i think giving
yourself that little bit of wiggle room
over the major level you saw can be uh
important in these opening five
minutes
so now we’ll see how we hold this 165
level and come to 166
or 165.50 where we’re kind of broke down
from in the morning and we’re holding
and you can just see this is such a
change of character how quickly this is
breaking out to the upside
volumes coming in large one minute
candle
this is telling me there were real
buyers down there this isn’t just like a
quick move up
to test the level this is a real strong
open
with buying coming in offers getting
taken out
bids con constantly holding higher and
respecting these pre-market levels
so we can see i sold 25 percent and a
166.28 so kind of just over this 160 650
level which i knew was
minor resistance cover some some profits
in
as these opening drives can come back
rather quickly
like here we’ve already come back about
a point from that breakout
but i still thinking the same thing with
my stop
maybe make it a little tighter under 165
now
which i’m updating so to 164.93
kind of thinking all right get a little
tighter
i don’t if it breaks back down to 160
450 that’s looking way too weak
i don’t need to sit through that um m165
did kind of hold from the major breakout
and let me button here and say that
another change in character we see with
this setup
is one getting over the opening price
when we rip back
up you know that’s a place where i
usually get in
or add to my position and then two the
spread
tightens up a ridiculous amount and that
shows you
that you know the trade is really
starting to come on in a big way
earlier in the trade towards the bottom
of the range the spread is like
40 35 cents but then
when we’re really accelerating that
spread tightens up to
10 15 cents which in a stock like this
can
be dramatic yeah that’s a really good
point that’s definitely
an indicator of strength and another
check in our favor when
the spread’s tightening up as it moves
in that direction showing there’s
definitely
more orders getting involved now
so this trade is going to take a little
bit of time to play out i’ll skip ahead
here
soon in terms of just watching the
pullback seeing if we still hold higher
and don’t break
below that morning low which is where
we’re really giving it to
so as we skip ahead a little we can see
that pulling really held
then we come to this previous resistance
hold and then break higher
so i still have two-thirds my position
on and right there i
sold another one-fourth getting me down
to a half my position
sold at 168 12. knowing this 168 was
kind of a level in the pre-market
respected here
question for you
at any time after the bottom after you
sort of well after you see
the the dip part of the dip and rip so
it pulls in
and you see the bottom from that move
after that’s put in do you see at a
higher level
an opportunity to add to your position
or
put on a little bit more risk or
that’s not part of this this type of
trade for you
um so i definitely think the ad
spot for me would have been the first
major pullback after we broke
um to 166.50 when we really pulled back
and this 160 550
started to support we clearly held
higher after a major breakout
and then we start to pick back up to the
upside on a little bit of lower volume
before an explosive move so i think this
support level which we kind of noted
and kind of reclaimed a little bit could
have been an area to add
but on these trades i’m definitely more
comfortable just going for
more aggressive price targets and and
not always adding but um definitely
knowing these can have
really large moves so giving myself that
potential with
still having half my shares over this
new all-time high
as this 168 168 30 in the pre-market was
the new all-time high of the stock
so here we’re just going to keep
watching how this kind of
breakout develops like i said we’re
often going to pull back
under these important levels after a
break out through them
especially when we’re at new all-time
highs in a stock they need to
develop the price uh levels and support
levels
um and it takes a little bit longer to
do that when there isn’t clear technical
chart levels so watching the tape is
pretty important on these breakouts and
noticing
how it’s reacting after a breakout how
far is it usually pulling back
what type of speed is it pulling back on
am i getting a change of character
in that sense on the tape maybe that’s a
reason to trim
um in this in this case i really think
this is holding well again
gets under this 168 which he broke out
from can’t really hold below
some bidders are still getting involved
there and we’re starting to chop around
that level
so that’s giving me confidence to hold
the second half of my shares to see
if we can really keep trending the
upside i mean at all time highs on 12
times our ball still
this is a great candidate to keep moving
on the day
yeah i want to point something out in
terms of psychology
always good to think about who’s on the
other side of the trade so uh your
your second yellow line
show in the pre-market so if we look in
the pre-market your second yellow line
this one at 167.42 okay this would
this was the prior all-time high coming
into the day as well and and then so you
see at 8 30
we start to roll over from that support
right yep right here
all right so when when we roll over from
that support momentum traders
momentum day traders are going to do
what they’re going to get short that
level they’re going to get short
that’s a door pattern they’re going to
say maybe the stocks up too much it
should pull in a little bit
i’m going to get short it’s not holding
these
higher support levels and that’s
and that’s different than what what it
had been doing in the pre-market
and then you know so it goes down has a
nice pull in
and then it pops back up to like that
once a little bit around that 167 area
but below that 160 750 area and it makes
a what
uh makes it look at the market
it makes a lower high right from that
so there are some more people so when
they when people see that lower high
what are they doing
they’re getting short again they’re
getting short yeah under the breakdown
or
into the pop as well yeah and then
uh you’re seeing and then you see the
stock make actually a new low
right when we open up right yep and so
there are people doing what
there are people uh hitting the momentum
short there probably through the lows
yeah and so there are three areas where
momentum traders are short
and so when you pack when you pop back
up
towards that 167 area
and then you start to go back up again
you’re getting the people who shorted
the lower high out
and then when you get that move back up
towards 160 750 and get above there
you’re getting people to start to think
that the momentum
is not to the downside anymore so you
just always want to be thinking in the
back of your head
hey is the momentum on a short-term
basis as an active trader is it down or
is it up
and you want to be cognizant of it’s not
down anymore
because we need something new
for people to think it’s it’s going to
be down it made new highs
it got above previous resistance areas
and again these are very short-term
charts
um but that intraday momentum is
not as bearish for these people anymore
does that make sense
agreed yeah and i like to use the
five-minute chart as well personally to
try and get that bigger picture idea
which is my top left chart here and we
can see that once we break out and then
we’re really holding higher on the five
minute over the night or 21 ema and
v-wop
it’s definitely looking a little better
from a longer term as well 100
and i think that when you’re trading you
know when we’re trading right on the
open
we’re looking at shorter time frames and
then as the day goes on
what a lot of really good traders do is
they start to look at longer term charts
so on the open some people might even
trade a tick chart
right some people uh may look at a
one-minute chart right on the open
and then in the same stock they may say
well after 10 30
i’m not obviously making opening drive
plays anymore maybe i’m going to start
to look for some swing trades i’m going
to go to a different section of my
playbook
for that i’m going to look at a 5-minute
chart a 15-minute chart
to see where we are with those
agreed and i often trade on a little bit
shorter of a time frame as
the morning session up till 11 a.m is my
strongest trading hours so i definitely
am working on talking with guys that
trade later in the day
in my class and kind of seeing how
they’re developing longer term chart
patterns
uh interpreting volume and kind of
interpreting the technicals for
the longer term so that’s definitely a
reason why i have this
hourly chart up here in the five minute
as the day goes on i’m trying to
think a little bigger picture where your
results are best
right on the open yes the first half
hour
is my best results by far so so far
so i mean you’re going to want a
different playbook
for different time periods so the way
we’re going to trade in the first
45 minutes of the day it’s not how we’re
going to trade
after 10 30 or after 11.
we’re gonna we’re gonna yeah so good so
good good to notice that
great so i will show skip ahead now to
where
i actually do get stopped out of this
trade um for the second
leg as the pullbacks just not really
what i was hoping for
it’s a little steeper here start holding
below this prior all-time high
like i said i trade a little shorter
term so i was kind of watching this
purple line you can barely
see it over the blue one there but
that’s my 21 ema on the five minute
and i like to use that as we get to this
like 9 50 10 o’clock area
for leaving on a potential trend in my
shares
and so soon here we are gonna wick below
that level
uh at 166.43
um and kind of stop me out there as you
can see it’s kind of a harsh pullback
not quite what i was expecting
and then it’ll have one more move that
really stops out a lot of weak
longs or i mean yeah week longs and you
can see this wick right back down 166.50
and it re-bids
so i was glad i was out before this
because this would have stopped me out
regardless
but i want to show the power of sticking
with this trade or sticking with the
stock and looking at the higher time
frame and really what you could have
captured on the second leg here
as these wicks could have been potential
riads or when you see it hold higher
here
and then we are going to break out to
another new all-time high
after a pretty steep pullback but you
can see on the five minute um
never really did break back through that
pre-market low or anything of that
nature
and it was somewhat of a higher low so
yeah that really shows there was another
two three almost four points
left on the table as this one even
higher on the day i believe
so yeah it kind of shows how i’m using
the one minute charts and
and sometimes you get stopped out a
little earlier but it also keeps your
risk
a bit tighter and then trying to
identify the larger time frame trade is
now what i’m working on and that’s why i
didn’t quite take this trade as i know
i’m a little weaker in it and i want to
watch how they develop more and this one
just these
these these pullbacks were a little too
harsh for me to really have confidence
to get back in again
so yeah that’s mostly what we have for
you um earnings to all-time highs and a
strong
name uh a strong sector in terms of
online sales during covid
and then the clear buying in the tape
off pre-market levels leading to
pretty strong uh move to the upside i
mean who doesn’t love to go to target
exactly they got a little bit of
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