In this video, learn how to make trades that fit your unique talents so you actually profit. See how an advanced fundamentals trader creates an AntiPlayBook Trade, The 5-Run Home Run, (hint: you cannot hit a 5 run home run) to help eliminate his bad trading and bad trades that are holding him back from being the trader he can become.
View Video Transcriptin this video learn how to make trades
that fit your unique talents
so you actually profit hi I’m Mike
bellafiore 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 click our
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of the videos they’re producing for you
in the trading community see how an
advanced fundamentals trader creates an
anti playbook trade the 5 run home run
hints it can’t hit a 5 run home run help
eliminate his bad trading and bad trades
that are holding him back from being a
trader he can become let’s get to work
kicking off fallen upon the the anti
playbook which is trades or trading
strategies that I’m trying to eliminate
this one I call the 5 run home run and
it’s really less the the mechanics of a
trade that I got wrong then something
that I noticed in my monthly review this
is a there were several examples of it
over the month but this is a
particularly egregious example of
something that I seem to be repeating
way too often and what it really is is
am I trying to take too much out of a
trade and having unrealistic
expectations hence the name the 5 run
home run I think everyone knows you
can’t get a 5 run home run the mantra in
baseball is you know just just put the
bat on the ball get on base and take
what’s available to you this shows up in
the area of trading psychology and is
something that really is impacting in my
the tactics and what I really think I
need to be focusing on right now and
thought this is a really good example to
walk through I do see two potential
steps to address this issue and I’ll go
into it at the end of the presentation
but let me walk you through the trade to
begin with the background is during the
month of review I found that this was as
I mentioned a phenomenon that’s going on
there’s there’s there’s too many charts
that look like this this at the high of
the day at around noon that was one full
day’s risk that I was in the green from
this specific trade that I think is went
to have that on there too not only let
it all go away would turn into almost
the equivalent magnitude in the opposite
direction is just obviously on
acceptable I do believe that this is a
function of trading psyche
and that’s something that we continually
talk about as being the key
differentiating factor between a
successful and unsuccessful trader and
something I’m very hell-bent on managing
and getting correct
as I talked about with dr. s at one
point I really need to manage my
expectations on a different time frame
that I’m used to historically and the
factors that I think contributed to to
wive had this change recently is sizing
up feeling some pressure and wanting to
produce P&L and on a technical level not
having an adequate sell or profit taking
methodology in place and it all
contributed to this this run right here
is it makes me a little sick quite
frankly the big picture we’ll walk
through the mechanics of the trade this
is a chart of Tesla we I think everyone
knows what’s happened in the market we
had the kovat crashed and a fairly
amazing rally the stock that we’re
talking about is VT IQ and it’s a
development stage electric vehicle
company that rallied from about ten to
thirty as of the time of this trade as
you can see Tesla’s has been running for
some time I think a lot of people know
and this seems to be an extension of the
interest in zero of mission vehicles
the company is very early-stage it was a
blank check company to form to acquire
Nikola I think I’m saying that right a
development stage electric vehicle every
truck company there are a list of heavy
hitters involved in the company and a
lot of optimism a lot of optimism but
it’s it’s incredibly early stage to try
and value this is an exercise in
futility there’s there’s billions and
capex required cost unknown growth rates
or guesses but they do like to highlight
that the total addressable market size
could be as large as six hundred billion
and that’s basically why people are
buying this company the fundamentals as
I just mentioned blank cheque company at
the time of the trade was VT IQ it’s now
trading at n KLA and for anyone who
doesn’t know it’s up another about 50
percent today got as high as 62 the last
time I checked and this is compared to
when I was shorting this in mid 20s only
couple of weeks ago the specific
fundamentals it’s 8 the ATR at the time
was 3.2 average daily volume 3.8 million
our volume on the are vol and day was
four-and-a-half it was very active and I
thought it had put in the backside short
institutional ownership I have not
available just I don’t know what it was
at the time it was a very early stage so
it just is no information again they’ve
the only accomplishments of the target
company that they’re acquiring is
they’ve raised five hundred million
dollars and been spending it they have
zero sales they don’t even have firm
contracts but they have quote-unquote
reservations for delivery starting in
2022
which is quite frankly optimistic that
suggests 10 billion dollars in total
revenues not in 2022 just that’s the
total backlog if you want to learn 3
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including this simple set up that we
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couple of hours from this trading
workshop then from years of online
education this is something I pulled
from the slide deck when I was looking
through it and there’s a little bit of
information here into the valuation of
the company but it’s just very simply
what I’m saying is if you can see over
here at the share price of $10 which is
the acquisition just what they expected
when they did the acquisition it
suggested an enterprise value of 3.3
billion again the only real
accomplishments to date are they’ve
raised five hundred million dollars so
they’re giving themselves a six fold
markup for completing a transaction of a
company that doesn’t exist these are all
things that led me to believe that this
was a short and yes there’s a lot of
optimism about electric vehicles but it
really feels like it’s ahead of itself
longer-term chart as you can see it hung
out right around $10 for quite some time
a little bit above it and then starting
in early May just absolutely took off
there was some press I saw an article in
Forbes and a bunch of people talking
about it but again no real
fundamental accomplishments got as high
as mid 30s and then the day that we were
involving is this is this chart leads up
to the day before that I was getting
involved and we will step forward to the
short-term chart you can see right here
overnight this is where we are it had
broken below a trading range and a
spiked low and was consolidating and
pushing lower so trade management the
day of the trade we can see a pretty
noticeable gap down I had gotten
involved pre market and had some size on
him it and got a pretty nice profit
coming out of the gate took the opening
drive lower and then covered the whole
position as we started rally higher
pushback test the previous day’s high
which arguably could have been a nice
entry but I was just not paying
attention to the trade right then and
then came back down my plan was to get
involved once we broke the previous low
and looked for a move something along
these lines
I had one false start here I was a
little bit early got a push down and I
got stopped out right above for my plan
a nice consolidation there then this is
where I started get a little bit
aggressive and I think my psychology
went a little sideways I was
anticipating a move down as it tested
higher then immediately pushed right
back lower stuck it out shorted again
when it just wycked above there and this
right here okay let’s take a step back
absolutely so when you’re taking this
trade right here what are you hoping to
get out of it are you scalping it I
meant them trading it are you swing
trading it for a move down to a target
price so more of a swing trade i dint
definitely tend to be longer iron I call
it a trade to hold and get a substantive
move down for something they had gone
from ten to thirty six back into the low
20s I was looking for and there’s some
technical support right around 20 I was
looking for a break into the high teens
okay so then we got to talk about entry
yes or that type of trade I’m not a big
fan of the waiting for it to get below
the low in this particular idea a bunch
of reasons I think actually gonna you’re
gonna need to look for a rolling over
pattern below of you up
okay to get into a swing trade for this
or shorting that actually into the
clothes from the previous day yes that’s
a little bit of a trickier thing but the
point is is that if you’re looking for a
swing trade to the low you’ve got to
start at a better price because you have
to give yourself enough room for your
stop for to make sense and for it to
work
shooting that stock below the low for a
swing trade I don’t like that unless
there’s been a lot of time that’s gone
by
unless it’s taken many times and there’s
been many failures for it to get below a
particular low and that load then
becomes support and then we finally
finally finally get below that support
level finally finally finally get below
that low because when you’re looking at
the stock you know you’ve said this has
been a runner you’ve said this doesn’t
make any sense you said this is a growth
this is a potential growth stock and a
growth industry although you debate that
but it’s people are looking at this
potential growth stock you’ve got to be
cognizant of spikes enthusiastic buyers
people buying Pullen’s shorts that are
have to get out of positions and it’s
it’s day one right for the most part in
terms of pulling in weakness not not
really it’s it’s day three from where we
had a real spike low or excuse me spike
high so let me go back here well I mean
what I mean by that is it’s the first
day it’s showing some weakness yes
so peaked out and then it consolidated
in and then really pushed pushed lower
I’m sorry I should have used better
language so yes yes so it’s firstly
showing weakness so get your entry price
is gonna have to be pretty good and that
that hitting the low is for momentum
trading or scalp
so and you’re making a good point that I
need to get clear on myself is you know
my mindset was that this is a swing
trade and I started with it as soon as
it opened it got going but your I I know
and had the mindset that this is a
momentum Lots when I’m hitting the new
low on the day and I do this is kind of
exactly what my problem is is having
swing trade expectations for a momentum
strategy and that’s I need to be clear
in my own mind exactly how to manage
distinct traits those are not the same
thing and when I get it and it’s running
I’m like okay great I’m not looking I
should be much more aggressive in taking
that momentum lot off and letting that
core swing trade work and that’s that’s
something that I can fleet to frequently
yes so the three ways to get into those
totally agree the three ways to get into
those swing trades would have been short
into yesterday’s clothes rollover
pattern near Viwa that you can trade
against new low only if that new low had
been significant support and time had
gone by yep so that’s how I want to be
thinking about that or else the swing
trades aren’t gonna work is you can just
look at the chart and see you need to
give it a point and the point doesn’t
even meet anything even the twenty seven
dollar stock right and you gotta you
gotta know that going to this today so
those are three patterns to be thinking
about and the most common one is the
rollover pattern below view up yes
and so we’ll talk some more about that
as time goes by but god I didn’t jump in
there so no you’re actually great
straight man this is gonna be the not
the slide coming up the following slide
is how to do it correctly and I’d like
to hear I think I have some of those
elements incorporated but not all of
them so following up on that you can see
what happened and this really speaks to
my psychology I’d had a really good
trait again this was my full this would
have been this trade alone would have
been a good day for me and then I
covered I was fine covering it here but
my expectations were we’re gonna go back
lower right before one and I added size
over 280 ours and as soon as we started
to work higher I started to fight it and
this is how I gave my entire day away
right here just boom boom boom and I had
this area covered it’s like okay as soon
as we got above there I’m stopping out
Oh two minutes later we’re going back
down I was right get back in stop myself
out and then this is just garbage this
is just exactly what I should not be
doing i point to a couple of things how
to fix this step one and I’m talking
about trade psychology but one of the
things that I believe is that trade
psychology only comes in where a process
doesn’t have very hard and fast rules
dictating the decisions and I have too
much latitude in my process at this
point which allows my psychology to get
involved so that’s exactly what I’m
working very hard on right now is it’s
just tightening up the process at the
corners eliminating subjective areas and
saying you know no this is the rule if
I’m taking a break out and it comes back
in by even a little bit it’s a momentum
lot it shouldn’t come back in as example
adding when a stock is trending against
me again I’ll go into that in the next
slide and then having a you know
automatic objective sell discipline that
I don’t violate that will reduce the
impact and the subject subjective
ability that I have and I’m getting some
things wrong with trading psychology the
biggest issue I have right now is I’m
trading my P&L I look at it and I say oh
you know I can be making dollars and and
quite frankly you know seeing what
happened in March and the the P&L that
was put up did impact my thought process
too much but that’s just not how I
should be thinking about things it’s not
March I have to take what’s in front of
me again the five run home run example I
can’t hit a grand slam if there’s nobody
on base just have to take the trade that
I’m taking it’s also the fact that I’m
increasing size and it started thinking
about dollars of a proper execution
so the real steps I need to take is just
a my trading correctly it’s pretty
simple vanish that question and think in
terms of our if my risk is X and I’m
generating or R and I’m generating two
or three R that’s a good trade period I
don’t care if it’s three dollars or
three hundred dollars or three thousand
dollars if I’m generating multiples of
our time actually
correctly so stepping ahead to the next
how I should trade this almost exactly
to your example I just jumped in right
here yes love your emphasis on our great
things for developing and new traders to
be thinking about for the interns to be
thinking about for the new traders to be
thinking about for the developing
traders to be thinking about look I mean
the reality is is that we’re very
fortunate at the firm respectfully
you’re all very fortunate to be able to
trade at a firm because it relates to
your last point which is if you can
produce are if he can produce multiples
of are the Capitals there for you the
risk manager is there for you to come to
you and ask how much more risk you want
and do it responsibly the partners are
going to support you the partners are
going to encourage you to take on more
risk when you have proven that you can
produce multiples of are the technology
is there for you to be able to execute
like you need to be able to execute when
you’re trading bigger there are people
around you who obviously are trading
with a lot of size and a lot of risk who
you can emulate talk to show you that
you can do it I mean when we used to
actually be in the office now remote but
maybe we’ll get back to the office soon
you know when we used to be in in the
office you’ve walked the halls with
people who are making a lot of money and
when they started they were focused on
exactly what you were talking about
exactly what you’re talking about
exactly what you’re talking about
and then just are becomes a bigger
number right yes though the risk becomes
a bigger number but they’re still
essentially making multiples of our so
all right at the beginning the are used
to be thousands and now it’s ten you
know that’s tens of thousands and that
it’s hundreds of thousands but it’s
still the same game so love the way that
you are focusing on are 100 percent and
if you just can do that if you can
produce multiples of are you’re in a
great place for
everything else to be taken care of
that’s not true of a lot of people like
you have all the capital you need have
all the products you need have all the
support you need which which should
bring peace of mind just focus on that
all right
exactly it’s exactly how about trying to
think about things every morning
speaking to your comments from a couple
of moments ago this is how I think I
should execute the stock this is 107 a
fit of hindsight exactly what you’re
talking about I looked at it the first
two arrows or the trades I actually did
this is you know it broke down below a
small consolidation pre market that’s
where I got involved that green dotted
line was with the stop that I gave
myself which was never tested and then
excuse me the second yellow arrow is
where I took profits after an opening
drive lower so those are the two trades
that I did and that’s good okay ignore
or avoid a spike higher and then exactly
you’re talking about this I viewed as a
rollover pattern below vie WAP Push down
tested it a spike lower comeback a spike
up into view up and then to rolling over
I should be getting involved right after
that spike can have you up in a failure
my risk is very small I’ve got a lot of
reasons I’m bearish on the stock and
think this is absolutely a possibility
the the risk reward that the profile
that we’re talking about right there
is that’s a great trade so looking at it
how I think I should do it is you know
have one or two Lots on here this is a
strong push down and you can see there’s
some volume spike here and a you know a
pretty distinct candle there that looks
to me like that I should be taking some
off take a hat right there yes okay
that’s right
that’s my trade that’s your trade that’s
your trade that’s your trade that’s your
home run how many people are on base if
I tell my son you can’t hit a five on
homerun he’s gonna be a little upset but
that’s your trade that’s your trade
that’s your trade and what you’re doing
right there is and people watching will
see how much better and how much
advanced you are in looking at
fundamentals than other traders who come
before you you have an advanced
knowledge of fundamentals and how they
may affect price action now we’ve got to
find that’s that can be good and that
can be bad as we’ve talked about many
correct because sometimes you’re too
smart for the rest of the market and
sometimes it takes the market longer
than you’d hoped to catch up to what
you’ve discovered and we saw that you
had a great fundamental thesis in was it
BBY yes maybe what triple B Y triple B Y
you had a great thesis on that and it
took a little bit longer for it to play
out but you were exactly right and so we
got it we got to take that advanced
knowledge and we got to match it with a
pattern that works for the type of
trading that we do and that patterns got
to match your particular strengths
traders tend to be good in in two
different types of ways one they’re
really fast thinkers and they can really
trade the price action okay so even in
your class you can see like the maxes
and the David I don’t leave one anyone
out the swangs
there are people that process
information quickly it’s why it’s not in
your class but there are different types
of traders who do different types of
things
well the price action traders are very
fast thinkers they process information
very very quickly my partner Steve
Spencer is like that he can give you an
answer before you can even get it spit
it out of your mouth very very fast
thinker you want to find the types of
setups to match that type of thinking so
somebody like ass-wang some of the fast
thinkers would be more interested in the
new low right in the momentum trade in
the scalp somebody like yourself is
gonna be less interested in that and may
shun that they decide to eliminate that
they decide after measuring trading
stats you just don’t do well at that
types those types of trades and and that
could make a lot of sense given you’re
interested in fundamentals so that trade
right there that rollover pattern below
B whap is showing you the weakness is
showing in the pattern it’s a little bit
of a slower developing pattern and
that’s fine there are people that do
very
well who are deep thinkers as traders
that need things to set up can be a
terrific trader by not being a very very
fast thinker by being more of a deep
thinker so your deep thinking is diving
into the fundamentals better than others
looking for the setup to actually come
to you and and be a little bit more
patient it’ll take a little bit more
time and then put the trade on and
you’ll be in probably trades that are a
little bit longer hold it a little bit
longer they’ll take a little longer for
them to set up but you’re matching
you’re matching your playbook now with
what you do well how you think well and
that’s that’s that’s when that’s when
people really start to become powerful
as traders Corral you’re speaking
exactly yep to the I don’t wanna say
mental struggle that I’m having but the
the evolution I’m having of trying to
match my skill set up with you know a
different time frame that I’ve operated
on historically I am trying to develop
some scalps to generate enough cash flow
to keep me occupied while I wait for
something there’s to set up its you know
an incremental tool and toolbox is how I
think about it but I completely agree
with you that this is okay you know I
can have my and and that my fundamental
analysis can get in the way I can give
you every reason why the stock should be
12 and I need an a mechanism that
prevents me or or puts guardrails around
me so that I’m not sitting there waiting
when the stock bounces off a 20 and
starts working higher let me jump in
yeah it it probably will be yes 1.12 but
we don’t know if it’s gonna be 80 or 100
or 120 or 150 before correct and as
traders yes we put on risk but we put on
risk responsibly and we’re not gonna
draw down a million dollars to make
50,000 correct I’m gonna draw down a
little to make a lot this is the last
point I’ll highlight on here which I’m
trying to really incorporate and
more and these are some just some very
basic moving averages that I use that
are fairly reliable this is a 50 and the
faster one is a is a 21 but right here I
can capture all this move down takes
them off again into a high volume push
down this is just a classic you know
selling exhaustion signal that I’m very
mindful of and able to take advantage of
but then here this is the guardrail I’m
talking about I’m moving the average is
turned higher I get a backtest and then
we’re moving higher that’s full stop
that’s it done for the day there’s no
reason to be doing anything in here
despite my expectations 10 bucks 12
bucks I don’t care the stock is moving
higher its objective there’s nothing to
dispute and as I incorporate this that
that’s something that I’m trying to rely
upon in my time frame I don’t care
stocks going higher I can reenter it
here and get the full benefit of the
move down I’m trying to incorporate
those kind of tools to prevent exactly
what you’re talking about
you know it’ll go to 12 but it sees a
hundred first or at least 62 as of an
hour ago and there’s something that will
keep me out of the way on the way to 62
and I can get involved in a much higher
price I love that I have to say I don’t
know if this really is an issue of
trading psychology for you as opposed to
trading the right types of setups for
you and looking for the right types of
setups to match a fundamental thesis
with a short-term trade if you are
making momentum trades poorly and losing
money and that’s not what you do really
well you should be frustrated Thanks so
called beat that’s called being human if
you weren’t frustrated I’d actually
wonder I’d worry about you then
so don’t but I think if you don’t think
about this go back and ask yourself if I
had taken the trades that really are
best for the way that I think my special
talents and and and they hadn’t worked
out if I had taken that rollover below
view obturator
that may
cents I put that trade on and it didn’t
work out and I moved on to another trade
would I really be that frustrated I and
so you know that’s a good question to
ask yourself okay keep me if you keep
making trades like that you understand
that there are gonna be some trades
where you lose money we tend to get
really frustrated when we’re doing
things we shouldn’t be doing we
intuitively sense this is just not the
type of trading that I ought to be doing
these are not the types of losses that I
ought to be taking they get you a little
bit more aggravated but it’s a result of
it’s a result of a lack of trading edge
mm-hmm the lack of trading edge and I
bring this up because I think Anthony we
were talking about this with last week
bring this up because it’s important to
study the things that you really need to
study that will make you better and if
you’re if you think there’s something
wrong with you if you think there’s
needs to be a study of trading
psychology and really the issue is a
trading edge issue which feels to me
like that is the issue and we’ll have
plenty of other discussions and maybe
that stuff out but you think it’s you
and your trading psychology you may do
some things in your review that aren’t
going to get you to the result you need
to get to quick enough you need to be
looking at the patterns where you can
put on your trades that match your
fundamental thesis and studying them
because obviously the rollover patterns
will love you up there’s gonna be better
of them than others where you’re gonna
want to put on even more risk than
others and and so the study of those
trades and and their specific edge are
gonna be gonna be super important
appreciate anything else we we want to
throw in here note that that’s really it
that’s good yes yeah and let’s keep
going from your strengths great job
breaking down this trade great job
teeing up the fundamental potential
trade obviously it’s a lot higher so
you’ll be able to make even more money
when you capture the backside right so
we’ll have you back and you can explain
the great trade you made there be
should start game-planning that like yes
up higher that’s better for you I’m
absolutely game plan the really big
trade okay appreciate a try
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