In this video, learn how to stop (frustratingly) turning a winning stock trade into a losing trade. See how a junior trader creates an AntiPlayBook Trade to help eliminate his bad trading and bad trades, in this case turning a winning trade right on the open into a loser, that are holding him back as a trader.
View Video Transcriptin this video learn how to stop
frustratingly turning a winning stock
trade into a losing trade hi I’m Mike
bellifiore co-founder of SME 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 play book click our
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of the videos they’re producing for you
in the trading community see how a
junior trader creates an anti play book
trade to help eliminate is bad trading
and bad trades in this case turning a
winning trade right on the open into a
loser that are holding him back as a
trader let’s get to work
today I’m sharing this anti play book on
trade that I do quite often and there’s
portions of it which looking to work on
what’s the opening drive to the short
side so the setup at its core is it’s an
opening drive play there’s a consistent
pattern throughout these traits that
I’ve been recognizing causing me to
taking take losses pretty frequently the
one bad trade I’m the anti play book is
made on the follow up the second attempt
to this opening drive short it’s the
second leg where instead of following
through with what the original setup was
that momentum trade to the downside it
ends up turning into a different trade
altogether increasing size while there
are reasons to exit telling me to get
out instead of increasing size the
original set up is a short position it’s
based on first the planning so it’s
anticipating a sell-off in the stock
right near the open or during a price
discovery and this is due to one of many
reasons these examples it can be a gap
down with a strong negative catalyst
that may show me that off of the open we
might see a strong sell-off so I’m going
to get prepared for it there could be
some news event or changing fundamentals
where there is a huge gap to the upside
and maybe I’m doing this piece of news
as a potential overreaction and looking
to see if there’s going to be a sell-off
on the open in a general just planning
for a trade no matter what the catalyst
is if there’s going to be this sharp
sell-off to look for confirmations off
the open for potential entry these
confirmations can be recognizing strong
selling on the tape I’m seeing I just
consistent all for stepping down driving
the price lower
the bids failing to be able to support
the price at whatever levels trading at
and also there’s this price action which
can reflect the lower highs lower lows
closing at the bottom of the candles
there are many confirmations that can
show that they’re just clear strong
selling Mount flow in the stock these
three examples are opening drive plays
where I’m looking at the sell-off and
I’m recognizing whether it’s the price
action or the tape for some reason in
each of these traits the position is
being opened up as a short in an attempt
to capture this momentum to the downside
on that original sell-off the three
arrows that I’m pointing to our spots
where instead of seeing what’s happening
develop on the chart or on the tape
instead of me taking off risk or getting
flat I’m instead adding to this position
and this is the practice that I’m going
through in this playbook as a bad
practice and a bad trading habit that I
would like to try to minimize so
basically you’re turning a trade that
was a winning trade into a losing trade
is that a fair assessment yes exactly
okay so when you’re in the money is it
mostly an issue of you not taking off
winners and trying to make too much
what’s the root cause of all this I
think the root cause of adding to the
position once there is a confirmation in
the opposite direction instead of taking
off risk or getting flat is that the
confirmation is leading up to me
actually entering the position and then
once I enter the position and it’s
proven to be right as it continues in
the direction to the downside that
continuation after I already answered is
just another confirmation where I feel
okay I got ready for the trade I wanted
to see XYZ this happened and now it’s
continuing lower if there is a bounce
I’m not taking it in quickly enough to
say which I should be that okay this is
a confirmation in the opposite direction
but rather I’m looking at it as a way to
say oh I got lucky that price bounced
and now I can enter in for a second
second leg lower I try to exaggerate the
winds I see that it’s going in my favor
and that if something has going against
me if the price is going against me from
that I can just exaggerate the wind that
I already had the amount that I was in
the money now I just have another
attempt to be able to add on to this
once we’re at the lows of that opening
drive I think that we can get back there
and so if we’re only getting back to
that level I don’t think that being
right deserved that small of a game and
that I want to as I mentioned they
exaggerate add-on to these physicians so
that once we do move back down to that
level the amount gain the return will be
quote unquote worthy this is a bad way
of looking at things
but it’s it’s part of the psyche that
I’m trying to get rid of which is
attempting to have these gains be larger
than you know than they were in the
first place once I was proven right I’m
expecting that I can get this moved back
down to where I was I would like it to
be larger than it was the first time and
this is just a bad habit altogether and
it’s a bad way of looking at things and
setting price levels if you want to
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education yeah I mean are you sitting
there saying to yourself well I was up
$1,000 just to come up with a
hypothetical now the stock bounces
you’re up 600 does it bother you that
you’re now not up $1,000 still is that
what is at the top of your mind is it
something different it is I wish I could
say it wasn’t but it definitely is that
number that I I was at whenever the
highest return that I had gotten if it’s
ready to move against me and this is
happening really quickly then I think
I’ll wait till we move back lower so you
actually I’m guilty of this as well so
you actually
are saying to yourself instead of being
up $600 you using the hypothetical I
drew before he robbed a thousand bounced
on you now you’re up 600 instead of you
thinking you’re up 600 you think you’re
down 400 is that fair that’s fair in
this specific trade style yes at times
okay do you feel like you can do a
better job determining in real time when
to take off going forward or do you feel
like you’re just not quick enough and
this isn’t something you really can get
better at in the near term I know I can
improve on this this is part of a set of
rules I set out to avoid trading until
about a month ago
a month and a half ago six weeks and I
think going forward as long as as long
as I can recognize that that’s a bad way
of looking at things and following the
rules that that I’ve said that I can fix
this going forward you’re mostly swing
trading are you doing mostly scalping
we’re where most year winners coming
from towards the opens mostly scalps
throughout the day doing a lot of a lot
of majority of my trades I would say our
breaking news trades to scopes but I do
have a mix of entering in early on and
holding for a few hours okay so this is
more important for you to get this right
then so if you’re doing more scalping
you’re gonna have to think quicker and
recognize faster when it’s time to take
off your scalp for these opening drives
for example the the first example listed
here do you see that as a way where once
it reaches my initial entry that is that
time where I should know there’s a
change in character or is it the very
first bounce well when I see that Guild
chart what I see is a steepness which
you could develop into a rule which
could bring a trade decision as to get
as to get flat when you’re scalping when
your momentum trading it’s super
important not to let the stock go back
against you that’s a yes it’s a really
good momentum trading and really good
helping really good momentum trading and
really good scalping is you are short
when the stock is going down and you’re
long when the stock is going up and I’m
not trying to be cute about that I’m not
trying to make a joke about that as if
trading is that easy that is really what
I meant and trading and scalping it’s it
is you being good enough to be short
when the stock is going down and when it
starts to go back up you’re out you take
your profits you can see where to take
your profits you’re out and you start
over and you look for the next rate
really good scalpers in an opening drive
play in their playbook will have that
good short and they’re good enough with
not only do they have that good short
but they’re flat take their profits and
then they get long a little bit for some
pretty good Long’s they’re gonna have a
particularly when something gets too
steep they’re gonna take the profits
into the steepness at a really good
price and then they’re going to get
along a little bit into that bounce as
opposed to what you’re thinking about
doing which is not taking the profits
and then adding into the bounce think
that’s not momentum trading and that’s
not scalping that’s that’s the essence
of sort of swing trading which is fine
which is there’s a lot of really good
help traders swing traders on our desk
to trade differently we’re making multi
day plays and when you see the steepness
on the open when you see that opening
drive that isn’t gonna be a signal for
you to get out of your swing trade it
may be a signal it probably is a signal
actually where you’re it’s confirming
you’re right and then you are going to
short into a spike into an op move wait
for a turn add some size to it and play
for a lower move but not but not but not
for momentum trading and scalping and
that’s what we go through these playbook
trades that’s what we ask you guys to
build your your PlayBook is because you
have to understand the trade that you’re
making the trade that you’re making has
rules it has a strategy behind it there
are time-tested things that work and
don’t that we need to point out to you
okay so that’s and that’s why I asked
that question
scalping momentum trading opening drive
play is not you holding into the bounce
at you getting the heck out taking your
profits you did a great job you found
the right stock very hard to do you
found the right stock there’s all these
stocks to trade you found one of the
best ones and had a huge move to the
downside weaker than the overall market
that’s a terrific job by you okay and
then you got in it that’s super hard to
most people can’t do that and then you
held it for at least a good period of
move most people can’t do that really
what we have is just one thing that we
need to to fix I actually argue to one
thing being your exit strategy and two
things being your mindset of taking
these trades a little bit quicker and
and being more mindful not to hold these
things against you because that’s a
different trade and if you want to
develop swing trades and we’ll talk
about we’ll have another congressman
just make up have a completely different
conversation but as you explained it to
me momentum trading scalping opening
drive plays we don’t want to be in them
we don’t want to be any other move on
the initial entry short okay so hey
great examples right here can we go
through the primer example that tipped
you off to this is something that you
need to work on we go through that in
detail and talk a little bit more about
it so the original entries on this trade
are based off of recognizing that
there’s an opening drive to sell off to
the downside as you can see on the
volume bars below the chart
there’s consistently a much larger
composition of that bar made up of
outflow which is hitting the bids which
is just showing that there are
aggressive selling rather than
aggressive buying and this is true
throughout the entire morning so with
these confirmations opening up a short
in front of the low of the day also
where there’s been a recent bounce in
consolidation and holding near which is
this first arrow and then once there’s a
bounce and it’s immediately sold back
off and
dey’s put in adding to the position on
the short side so here’s where I go
wrong is the bounce and when there is a
change in that momentum covering into
the momentum as this inflection was
reached the 7250 was an inflection point
which was hit and then there’s immediate
bounce we see the price moving to the
upside and this shorter term moving
average was broken through there’s a
change in character and in front of that
which is right around a little bit below
73 is where I decided to cover half of
the position with the anticipation that
we’re going to move back down into 72 50
will move lower and I’d be able to cover
the rest beneath that level instead we
actually get a bounce which breaks that
shorter moving average on this first
large green bar right here we see that
the recent breakdown level of 7350 is
now reclaimed now the first breakdown
level which allowed me to answer that is
being reclaimed and lastly we get back
up to view of weak stock I’m Bella
mensch is quite often I am a weak stock
with extreme weakness we’re not likely
to see stock retraced from this extended
beneath view up all the way back to view
up if it is truly weak what I had done
during this trade was I allowed this to
go all the way against me just back up
to right around where I got in and
actually touched whew up which showed me
that I allowed all these confirmations
to go against me to give me a reason to
exit to show me that okay here’s where
you need to exit the trade look if
you’re making momentum trade you’re
making opening drive plays you’re making
opening drive Scout plays how do we get
out into the flush into 70 into 70 to 50
how do we create some rules or drilling
down into the tape the level to that
gets you and I suggest you have to take
out literally the bottom but you should
you should
your goal should be to get out near the
bottom that is something that we can do
as active skilled intraday traders
looking for something that’s too steep
that stops to go down on our tape to
recognize that
going down any further or to use maybe a
technical level to trade off of that’s a
big consideration as well and then that
really is your job Jake that really is
your job that really is the standard for
easily opening drive scalps elite
opening drive momentum trades is you
being able to get out near that’s 72 50
ish area that really is the standard and
then as that goes back up where you’re
thinking about adding you thinking about
making a new trade and I’d actually set
a higher standard than that your
standard is being able to get out near
that 70 to 50 ish area being in it for
some of that up move into the 74 area
and then and adding that to your P&L
that really is the standard and then if
you’re gonna be scalping on the open and
then considering a new short where you
wanted to add to your original position
so these are really three trades and you
are trying to make one yes yes it does
so this playbook just to wrap things up
it was created off of an opening drive
short where instead of recognizing that
there are reasons to exit using those
reasons to exit say the bouncers for
example as a place to add to the
position to increase size instead of
getting out or taking off risk I spoke
about potential rules that I have in
place to be able to avoid one trading on
tilt in general for this type of
strategy and as well as just avoiding
this going forward this specific example
once I’m in the position once the price
target or a price target has been met or
there’s been a significant move in my
favor the price bounces and there’s a
new level I think going forward I would
like to see
if this can help by as you mentioned
Bella getting flat exiting the position
and reevaluating rather than just
jumping adding size and continuing and
looking for the continuation play if I’m
uncertain I think the best way to go
about this would be to actually get out
of the position and reevaluate another
role that I have is going through my
trader view going through the stats on
trader view and looking at what a normal
position realized so profit or MFE my
favorable excursion would be and if that
level is reached if I’ve made that much
on this play in the first try don’t let
it trade back to break-even especially
past breakeven so if I get to this level
I think that would be somewhat of a
trailing stop where if I’m up the
average trade that I make to be able to
use that as a way to say this is where
my new stock will be or if I can reach
this level to have break-even at the
very least to be the final stop not
letting it go negative if I’ve been up
and had an unrealized piano of that much
I’m going to be using these three
different rules to be able to see which
works best for me and if I can see some
change in the way that I trade I’ve been
using the intervals of average trade
average trade piano to be able to place
stops and price targets if I’m up a
certain amount in a symbol Robert an
amount on the day or down for a trader a
few statistics to use that as a way to
as Ryan always says not overstay my
welcome not push for too much more so
it’s a mix of being able to in real time
use the trade and if there’s a changing
character to instead of add to the
position to get flat reevaluate if there
is the reversal trade or if there is
just no reason to continue trying to get
more out of this stock other portion of
the risk rules to avoid tilt which is if
I am up a certain amount which that
intervals based on statistics from
trader view to not push it for lack of a
better term and using that those
intervals to know when to take a
breather
yeah that makes a lot of sense to me and
that’s it that’s excellent thinking
right there we have a problem we have a
an instance of underperformance and and
look you’re doing so many things right
doing so many things right you’re really
just doing a little bit that needs a
little bit of tweaking doing so many
things right so this is very fixable
adding on to all those things you’re
doing right a solution some solutions
will make it a huge difference and this
is an excellent way a bunch of you guys
joining us today this is an excellent
way how we think through long our
underperformance there’s gonna be things
that we need to do better or all trying
to do better every month every week
every day it’s the start of the new
month it’s a great opportunity for all
of us to improve all of us top to bottom
the way we do it is we understand what
we do well we do more of it we do more
of that bigger and then with this
exercise we cut out the stupid stuff we
cut out the underperformance we cut out
the stuff that’s very frustrating and
holding us back and it is very
frustrating to see a tray where we’re
really winning and we’re making a lot of
money and then get into a situation
where we give back those winnings that’s
very frustrating so we want to come up
with a solution to keep more of the
profits and do to improve our results
and that certainly does that certainly
will significantly improve your P&L so
Jake I appreciate you running through
this detailed review with us look
forward to you implementing those
solutions and seeing some better results
with this type of trading okay go ahead
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