I received this question from a reader in the trading community…..

I hope this is not a dumb question…would you agree that a stock in play creates edge and hence puts probabilities in our favor just by the mere fact it is in play? I’m thinking of BLNK today and IMTE last week. When stocks like these two are in play, it seems that waiting for patterns or perfect setups is like sitting in a boat on a river full of salmon waiting for one or two to jump in the boat when all we need to do is just throw the damn hook in the water. Could it be that we are making it more difficult than it needs to be. What are your thoughts. Thanks in advance and thanks for the training blog…some great nuggets in there.

Bryce

@MikeBellafiore

Yes! waiting for patterns AND with Stocks In Play can create edge.  I like how you are overlaying patterns to Stocks in Play to recognize edge.  When you spot a pattern in a Stock In Play, that stock will very often move, as we say “far away from price”.  Meaning our reward will be great, as when the stock starts moving away from a pattern it moves a large distance.  So when you are wrong, you take a small loss.  When you are right, you can catch a large move.  Stocks In Play, with patterns, set up outsized risk/reward opportunities.  What you are surmising as automatic edge in of itself.

On our desk, traders generally add another important variable- setups that make the most sense to them.  I would advise even one more variable- patterns you have measured, for which you have edge.

A terrific formula would be:

Stocks In Play + patterns + patterns that make the most sense to you + patterns that you have measured to have edge = Edge.

As a trading coach, I would be remiss to leave out some other additional tips for trading with greater edge: study of your best patterns, sizing in your A+ trades, technology to spot your favorite setups, coaching and mentoring of your trading.

When we first started our firm, a huge part of what we taught was stock selection and preaching the importance of being in the best stocks.  I made the argument for trading Stocks In Play in One Good Trade. As our desk has matured, what we trade has expanded.  How we trade has grown.  How we express our edge has become more sophisticated.  But what a great place to start as a developing and new trader- Stocks In Play.

Terrific observation and thxs for the question.

*no relevant positions