It is my belief that for a short term trader to reach the upper echelon of their profession they have to have an extensive playbook. As we train and watch new traders develop we have found that those who become profitable master one or two of their best setups. The few that go on to further success become very good at a multitude of setups. By having more arrows for their quiver they are able to increase their odds of being profitable on a daily basis.
One of the areas that a young trader can develop is their playbook for “high beta”. High beta are the stocks that catch the headlines on Bloomberg and CNBC. They are the stocks momentum hedge funds and active retail traders focus their attention as well. Some examples of high beta are CMG, AMZN, LNKD, and GOOG. On our desk the younger traders are very reluctant to get involved with high beta and they should be. Far too many inexperienced traders get involved with these stocks on a daily basis and wipe out their accounts in a blink of an eye. So we are very careful not to have newbs trade them. And we don’t focus on them during our AM Meeting. But we will offer setups occasionally to our entire desk in high beta if the risk/reward is heavily in our favor.
Today GOOG offered such a setup. It had a very tight consolidation on Friday, so it offered easy reference points to measure its strength and momentum intraday. It also has shown the most relative strength of the high beta names recently so any break from consolidation is a high probability high reward trade. Here is a short clip from today’s meeting where I discuss the setup. The reason we put in multiple price alerts is so we can get a feel for how aggressive the buyers are in the stock on the Open. If all three alerts are triggered in a short period of time we know to get involved above Friday’s consolidation.
Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].
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