In this video, learn how to use Tape Reading to determine one of the most profitable exits. Two traders from our firm and I discuss a recent trade in Peloton ($PTON) where one of the best exits was spotted with Tape Reading. And where the Swing Trade was not as profitable as a short-term trade. Let’s get to work on sharing these important trading lessons so you can grow your trading account.
View Video Transcriptin this video learn how to use tape
reading to determine the most profitable
exit
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
in this video two traders from our firm
and i
discussed a recent trade in peloton
where the best exit was spotted with
tape reading
and where the swing trade was not as
profitable as a short-term trade let’s
get to work
on sharing these important trading
lessons so you can grow your trading
[Music]
account
the particular trade that we’re going to
be talking about today is in peloton
really hot growth stock over the past
few months
and it has run up a ton not just in the
past few days but in the past few weeks
and on this particular day they had a
negative news catalyst
where it was rumored that amazon would
be partnering
with a lesser-known bike manufacturer to
make a competing product that was only
going to cost
one-fifth as much so because peloton
bikes are so niche and so expensive
and they’ve been the only player in this
new marketplace
and part of the stay-at-home trade um
this amazon news we thought was pretty
directionally bearish for them
and a stock gap down as a result of that
we do have history in the past
of amazon entering a space the grocery
space
as a as an example and
stocks in that sector getting hit pretty
hard so we also were thinking about that
as well yeah and amazon rarely loses in
these types of battles
because they have an unlimited amount of
money to undercut you
and sell at their own cost forever until
you go under
yeah so we knew this could be a real
threat to the company’s future if this
amazon deal really gains steam
and uh starts to get real sales so a
little bit of
a technical background for how the stock
was looking coming into this day
so this is the hourly chart in this top
center here and you can see we’ve been
in a strong uptrend over the past
month month and a half and then the
previous day to the trade this is the
five minute
strong gap up and then in the morning
this news came out about amazon you can
see we’re gapping down to about ninety
dollars so
that’s where the trade is going to kind
of start um we’re gonna have the open
and we have a hold of ninety dollars
very clear hold you can see it just
wicks
and then we’re going to be looking at
potential areas in this 90
150 to 92 area where a lot of volume was
done
a lot of selling in the pre-market and
we want to see how it reacts there and
if it really slows to potentially
take a short position at good prices
while also
taking into account the negative news
catalyst that could push this down
if funds want to reallocate their
positions based off this news
or just retail traders uh getting
involved so
i will start out the tape now and where
we’re starting is we’re going to
start by showing this push into 91
90. and we’re just really going to see
how it slows and it pulls back like 20
20 cents from the 90s for another time
pulled back to the 50s and then quickly
bid back up a little bit so i’m thinking
okay where in here can i get short
we clearly can’t even get to 92 dollars
even when we got to 90 cents
pulled back pretty significantly
and 92 starts to hold up as a level here
because we
can’t trade really to that level or
meaningfully above it
for a solid four minutes in the opening
a couple of minutes of trading if you
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years of online education so i stopped
it here just to show my short entry
more clearly so when i really see the
tape
struggling in these 50s really slowing
the bounce seems like it’s stopping
and i think it could start breaking down
through this 9150 level
so i get short at 91.47
you can kind of see there was just that
lack of buying up there
i’m risking a move over 92 dollars so
about 50 cents exactly
and just to make this interesting i
actually shorted this as well
into that 92 with stops above 92 and
stops above 92-25
for a swing trade and you’re gonna make
a little bit of a different trade right
matt
yes yep we had same the same entries
except we made different time frame
trades so
i can definitely we’ll talk about what i
did and then we can talk a little bit
about
what you were looking for afterwards as
well because i think that’ll be
good for everyone to see and where this
trade ends
actually gives us really good
information for the trend of the stock
for the rest of the day
so that’s another reason that we’re
going to look at this tape yeah and i
saw some weakness up towards that 92 as
well that houston mentioned
and so i started a swing trade my price
tended to be
closer to 91.50 we were talking about
this in real time over our audio chat
and i was swinging this for a potential
low a day
exactly i had added shares on the
breakdown so you can see my
average price went down a little but
once i got that confirmation that it was
really couldn’t hold up there
um that was that the reason for that so
now we’re just going to kind of watch it
hold lower and kind of step down
into this 90 area so two things that i
just want to talk about because i think
it will be interesting to
juxtapose that the two different types
of trades and i’m going to make fun of
myself actually
in this particular trade so you guys
will enjoy that
i like the 92 because as houston said i
start to see
a lack of buying interest up towards
that area and also if you take a look at
the pre-market chart
there’s a resistance area around that
92-25-ish area
and so that’s why i chose those two
particular areas 92 based on the tape
92.25 based on the pre-market chart
and as houston was mentioning i was
giving this
some room potentially to go to the
downside because it had been
below 80 not too long ago
after earnings and amazon has a history
of beating up some companies when they
enter their space
it was gapping down so we were given it
i was giving it a run to the
to the short side exactly and i was
also looking for the short side but on a
shorter time frame
and what that really means is i had
earlier price targets because i was
risking a little tighter
on my stop so i have limit orders to
cover some at 90 15
and 89.82 in case we leak below that
level
because i want to cover some risk they
clearly bounced off that level earlier
on the longer time frame you can see up
here in the top left 90
was a major resistance on this run-up
day and then it kind of faded from there
before we broke back through
so knowing that there’s real interest in
this 90 area that could potentially slow
the stock
so i want to take some profits and cover
some into weakness
so you see it’s just stepping down um
just looking pretty good feeling like
you’re in the driver’s seat
not looking to add or anything that
would ruin your risk to reward just kind
of letting it trend
really wanting to see it hold below
91.50 and then
hopefully hold under 91.
skip ahead a bit more and here we go
this is our first
pull into the 90 area so my order at 90
15
i believe will get filled soon
and i layered out a couple more in case
we get a quick flush through 90.
down to like 89. and you’re covering
into that 90 area because
if you look at the chart that was where
it bottomed out from
a little bit before that so that’s
that’s our temporary low
and so hey you’re a couple points in the
money almost
there’s a lot of risk to hold it near
that
low it’s got to then
get below that low hold that low so
you’re taking some risk off
taking some profits there and then
reassessing exactly take some profits
and then see how the bounce is
see if it can be a shallow bounce on low
volume
maybe indicating buyers aren’t stepping
in and this downtr
side trend can continue and we were
talking about this
in real time you you covered there and i
actually said to you that’s a really
good cover for an active short-term
trader
i didn’t cover a share but i was making
a different trade
exactly so we’ll see the bounce off this
area is pretty
pretty drastic so there’s definitely
still some buyers at that 90 area
but you can see after this harsh bounce
it actually does
re strong bounce it does reject pretty
harshly
i added to my position because i think
that that’s a pretty good risk to reward
trade once you
think that the trade is quote unquote on
at this point
like you’re a lot more likely to be
right that we’re going to see a new low
of day beneath
90 where we’ve seen this we’ve seen this
sustained weakness
and now you can put on just a little bit
more risking against like 91.50
just above v-wap area that was just a
pretty good risk to reward trade
definitely you can see the tape slowing
right into
um 91 and never even really gets there
and then you can just put your stop at
91.50 or maybe a
stop on like half your shares above 91
or something like that but
definitely what houston said that was a
great place to add and that’s something
i should definitely
review because that’s so clearly a
opening
drive like bounce continuation
uh ad area
you can see we have a bid at 905
that just quickly gives out yeah and i
want to just if you can just stop the
tape right here
excellent point by houston great
supplement there by you matt
we’re trying to short the pops everybody
can look at the chart and say if it gets
below 90 it’s going to be a little bit
trouble it’s going to have to go find
a new or low right we can all do that i
don’t know that i need to teach you that
much about technical analysis to say
that’s the bottom of the opening range
if it gets below the bottom of the
opening range when it has a weak news
catalyst
it’s probably going to have to go find a
lower price we don’t want to actually
short it below 90
because we’re we’re scared
that we’re going to short below 90 and
they’re going to blow us out into a pop
they’re going to make us cover into a
pop we want to get in
at a really good position i particularly
wanted to get in a good position because
i wanted to swing it but you guys
even making active trades even not
playing for the home run trade
you’re trying to short the pops to get
into better prices anticipating that
it will get back to 90 or then get below
90 and break down even more
and so just the way this was set up it
wasn’t going to be a good trade to try
and
momentum trade that below 90 and we were
positioning ourselves
for a breakdown much higher
than 90 and before it actually showed us
that it kickable it could get below
there
but thanks matt so now we’ll see how
this 90 area
reacts you can see we just kind of start
fading below it
i had covered a little more risk at
89.78
so in case because it was really slowing
under here i thought we would see like
faster continuation you see they bring
it back to 90.
so just being a little more defensive as
i am treating this shorter term
but still comfortable to hold my
position it’s clearly
working we saw a big bounce there in a
90 50 and a clear rejection
and now we’re heading into a new low so
on the longer
term chart um there’s like 88 area 87.50
is like a good target it’s kind of like
uh their initial breakout from the
previous day
so that’s that’s another price target in
the back of my mind if i can get into
the 88 dollar range
definitely be taking some profits
and now i’ll just kind of skip ahead a
little because it doesn’t move too
quickly
we get some
retest into 90 and you can see just
clearly is holding it can’t get much
above 90.
it’s really slowing into this area
and then gives out a point about so
that’s really signaling
some some weakness or some sellers
stepping in on these bounces
people really want to get short this
so i have some more orders layered out
like i said once we get into the 88s i
want to be taking off like my final risk
that’s kind of my price target 87.50
maybe best case scenario
nice job preemptively putting out those
bits
thanks yeah i find that that often has
saved me
uh a good amount of like 10 15 cents on
a lot of trades just because
i can get out as soon as the over
extension happens rather than when i see
it slow and it starts to bounce back
and not take liquidity either true yes
that is more expensive as well so
so you can see i covered a little more
at 88.62
down here when the tape really started
to slow into that area
and we’re about like
four or five points off the open now
and can you see the volume increase
right there and the spike down
that can be a good signal if you’re
trading this short term to take some
profits
price extension increase in volume
that kind of mini capitulation move
good reason to take some covers there if
you’re trading this on the short term
agreed and now the next part of this
trade we’re really going to highlight
is in this 88 60
50 88 70 area there is a lot of buying
and this is kind of where the stock is
going to stop
stop going down and really catch a bid
so we can see we push over this 89
pull back see if we can hold it
does start to hold it bounces again from
that area and now this
is this is the real make or break area
so 8860s 8870s we’re holding for a while
and then we finally get a test under
this level
so see it here we’ll go into the 8850s
which is would be like a new low in
there
and you’d really expect it to break down
from there but then
it gets bit up again pretty much right
away
signaling maybe a potential change in
trend as we had that huge capitulation
candle
as mike pointed out there was a lot of
selling so maybe the sellers were all
covering into that
and anyone who thinks this is a buy the
dip scenario maybe the amazon news isn’t
a significant
this is looking like where they could
really be stepping in
so here we are we’re in the 50s now it
goes into the 40s that’s a new low
we hadn’t seen 40 cents before that
quickly rebids 10
20 cents and that’s really not what
you’re going to see
for a momentum breakdown and making a
new low if you think this has
good continuation on the downside we
just see these 50s are really holding
now
so i believe i’m going to take my exit
when this kind of
reverses a bit because this was really
as i saw shares seeing if i could get
like an 88 price target 8810
from the longer term charts
but again we’re into the 40s it doesn’t
go lower holds higher in the 40s than it
did last time
and then we’ll really show this bounce
from this area we step up into the 80s
pulls back and now we’re holding 60s
instead of 50s
and we just keep inching higher from
this area
and never come back to touch that 88 50
88 60 area
so i had taken off my last shares at
89.38 so right in here
when i’m like this is old like under
89.58 it seems like we’re getting a
change of trend there’s kind of a pop
there was some buying volume here you
can see in this consolidation
and some real buying volume coming in
there so
i believe i’m about to cover my share my
last share short
just kind of seeing okay on this pop i
think it should hold lower it didn’t got
quickly back into the 30s and i took it
off there
all right good and so that’s a good
example of how you on a shorter time
frame are taking your profits
i actually i heard you saying there’s
buying in this area
and again that wasn’t my trade i was
giving this
a low a day potential end of day
coverage potential i wanted to see more
for me to cover
that wasn’t the trade i was making but i
heard you saying it i was thinking about
covering it and i reminded myself that
wasn’t the trade that i was making i did
actually cover
ever so slightly i think i covered about
25
when i heard you chirping about there
was real strength there
almost a triple bottom intraday on a
really short term time frame
can’t really push lower seeing lots of
signals from the tape that
their strength here it’s different it’s
not making new lows
the tape is showing you more strength
you’re seeing that it’s
not going down you’re seeing that it’s
stopped going down you’re seeing from
the level two
that there’s something different here in
a shorter term basis
and so because of that you can make a
trade decision because of that
you can get out of your mini swing trade
because of what you’re seeing on the
level too you can use the level two in
this case
to actually help yourself with swing
trades and mini trades so for myself i
can take some profits right there i have
a trade decision right there for
yourself
you can do that as well you can get out
of your momentum
short because you’re seeing something on
the tape that’s different
now i i promised i was going to make fun
of myself itself and i will right now
so where’s that stock today
it’s a hundred okay and so this is a
perfect example
of how when you’re trying to hit a home
run you’re going to have lots of open
profit that can go away
if you don’t take profits quickly it’s a
perfect example if you
have a longer time frame where you can
be in the money quite a bit
and not realize it where an active
trader can
you made money you walked away you
probably got long for all i know both of
you
um at some point and
i was playing for the home run i was
making this big swing trade thinking it
could go to the low 80s
i was firmly in the money
i you know didn’t really take profits on
my core
and i ended up getting stopped out
i move my stop down from my original 92
and 92
25 but i certainly didn’t cover it as
well as you did
and ended up giving back lots of open
profits and that is a
a great example of
active trading can help you lock in
profits
reading the tape can really show you
signals that things are different
that can tee up a trade decision for you
if you are open-minded and see it and so
i saw it and
and so i took up a little bit but but
was still playing for the for the longer
play
you always hear the only way you make
money as a trader is to hit these big
home runs
well not the case in this particular
trade
okay and we have lots of seven figure
traders on the desk who make lots of
trade decisions who will take
profits when they see things like that
um
and so that’s why i want to talk about
this really really great example i would
say one more thing
when we’re talking about this is in the
back your mind when you’re seeing that
buying on the tape right there
there are positives that go along with
this particular play which is this is
one of the hottest stocks in the
marketplace
this is a really really strong market
and
peloton’s product is is a pretty good
product and a more mature product is
amazon really going to compete with them
right now they’re doing better
in terms of the development of their
product than a supermarket was doing
when amazon entered that space and so i
think those three things need to be
thought of
where you think hey maybe this is going
to get bought up and maybe even fill the
gap
on a day like today and maybe that area
of buying
is signaling that it’s ready to turn so
really really good example there it’s
also worth noting that
that news with amazon turned out to be
complete rumor
although we had no way of really knowing
that during the time of the trade
that’s also an advantage that we have
because people came into the trading day
today
and it was just a naming error
you know on the part of the third-party
bike manufacturer
and i’ll we’ll mention this is kind of
how the stock played out through the
rest of the morning until 10 30.
i can see that buying area which was in
here where we really highlighted
never really came back to here and
trading this short could have given me
enough information to also get long and
make another
trade in that in that way when those
trade decisions come
so just goes to show that that morning
information and reading the tape can
help
you see trends and also see the shorter
term plays
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