The Flag Breakout Trade 📈

In this video SMB Trader Kyle walks through a trade he took in Target after better than expected earnings. Learn to trade this flag breakout trade with well defined risk.

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hey guys kyle here in this video i’m

going to walk you guys through a setup i

took on target

after they reported better than expected

earnings

on a consolidation break that had a

well-defined risk to get involved

[Music]

this is from may 19 2021

it’s a flag on target

you know it’s a consolidation break they

had really good earnings

and that’s why i was in play on this day

so the game plan coming into the day

we’re

i was talking over with this setup with

a few other guys

on the team that i’m working with and

you know we’re simply looking to see if

this would tighten up and maybe flag out

on the day

after building a solid base for me i was

either looking for a one 5 15 minute

flag break

where it’s setting up on those time

frames or 1 5

15 hourly um

it ended up being a little bit extended

on the hourly but that’s okay

you know still setting up really nicely

and it was nice and tight

gave me a solid risk to reward level and

i had a 15 minute level to risk off of

and if we got below it you know the idea

was dead and that was okay

so you could kind of see you know the

game plan below

that the timing point was this 2 16 25

and we’ll go over that

risking off to 14 93 so basically a

dollar 30 of risk and

you know really good r multiples if this

wanted to open up and you know

it had the possibility to turn into a

swing so this was a day that

you know we came into the morning and a

lot of the crypto names actually tanked

overnight and many of them were down you

know

greater than or equal to 30 percent so

you know a lot of eyes were in the

crypto market but you know this is

aside from that one thing to note we

like to look at is vix

and you know the low to high on the day

was 21.88

to 25 and

you know anytime vix is kind of holding

over 20 i

really want to see if i can hold things

a little bit longer because you know

volatility has picked up

and sometimes we get some outsized moves

so the fundamentals of target you know

they had earnings

in pre-market better than expected q1

eps and sales results

you know they blew up their numbers same

day

same day service services rose more than

so really good earnings um you know a

few upgrades as well

it was really in play on this day

so the daily volume on this day was or

the typical volume on target is around

3.77 million

arvol on this day was 3.7

so for something like target you know

that’s telling you this is certainly in

play

um on this given day and of course it

had a lot to do with earnings

atr how far you know this stock

typically moves

is about four and a half points so you

could kind of use it as a target but

you know with arvol over three um

you could kind of look for maybe a

little bit more than that maybe two atrs

maybe three atrs

um it all kind of just depends on how

the stock is flowing on that given day

so the short float you know very low

only 1.3 percent

so not that many people are stuck short

you know who really wants to be a short

target

it’s a great company they’re doing very

well

you know the stock is breaking out

and you know the float on this is 500

million very high institutional

ownership you know 82 percent

and typically on day one you know

earnings

you really want to see what institutions

are doing are they buying at the open

are they selling are they not really

doing anything and to me

you know it looked like there was some

institutional

um participation on this given day

so it looked like there’s a possibility

that you know this day it could actually

go instead of you know maybe needing a

day of rest

and for institutions to kind of talk

over how the earnings went and

everything

so the long term on target you know the

daily right here it was at 52 week highs

breaking out on the daily from great

earnings on elevated arvol

you could kind of see it’s been building

some higher lows but kind of

consolidating for the last couple months

and then we broke over that from the

earnings

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this is the setup that actually

got me involved you could kind of see we

you know had that opening push

we pull back in get nice and tight spend

you know looks like an hour or so of

consolidation

of you know going sideways consolidating

getting nice and tight

and that’s what i’m always looking for

you know i want to see a level where

a stock gets nice and tight and i have a

level to risk off of

and if we break out of that level out of

that flag or that consolidation you know

the

theory is if you think people are you

know stuck short on the day

they’re probably risking off that level

or those lower highs right above

and you know you should start to see

them paying you know covering on the

offer

so you know lifting the offer as well as

you know longs who like this idea

um they’re probably taking it around

this level as well so what you really

want to see

is if you’re playing a timing point like

this you know a flag break or

consolidation break

you want to see the stock push away from

price

rather quickly and you want to see it on

volume

and we do see some volume come in um

of course would have liked it to you

know push away a little bit quicker

and with a little bit more volume but we

do see you know volume start to pick up

what are the time frames for each of

those charts yeah so the one on the left

is the one minute the five minute on the

right 15 minute bottom left

and then the hourly on the bottom right

okay and so

for this trade you want to see all of

those time frames setting up tightly

ideally now it was a little bit extended

on the hourly you can see

um that blue line is the 90ma and that’s

kind of how i determine

or get a good feel if something’s needs

to spend a little bit more time

and you could kind of see the hourly

bottom right was a little bit extended

but a one five fifteen minute flag is

still a setup for me that you know i’m

happy to take

the title of the presentation though is

1 5 15 right yeah flag break

and that was your game planning yeah for

the open

yeah so is the hour hourly setting up

tightly

super important or is that just sort of

yeah so

after 1 pm i don’t want to be taking

only a 1 5 15 minute flag break i want

it to also be setting up on the hourly

earlier in the day i will take this

setup it doesn’t have to be as tight on

the hourly but you know if it can that’s

even better

more market participants

um so we could kind of see that um or

that box right there is day one where i

got involved

now you know i was out of it by the end

of the day but this is something that

down the road and something that i’m

working on with someone who i have an

account with

um you know we’re working on some of

these bigger ideas you know maybe

covering risk

and then you know something like this

where it has great earnings

you can just give me the initials who is

the person you’re um

tim okay that was that’s the full name

yeah i know but

i don’t think he cares gotcha um

so yeah something like this that has

great earnings

above 52-week highs you know nice and

tight risk and you could cover some risk

um you know this is something that we’re

looking to swing down the road

so just an idea we do not talk about

this

very much but might be interesting for

initials tim also to take a look at

so we get a ton of research here yeah

and when you’re

game planning before the open for a very

specific trade

it might it might make sense for one of

you

to just sort of take some take a look at

some of the notes that are coming in

yeah on these particular

stocks on this particular stock and see

if it’s

if there’s some research that could

drive this or have some uh

have some added ammunition behind your

thesis

i’m not suggesting to dive really really

deep into the fundamentals or not but

it would be interesting to note that i

actually think initials t-i-m

yeah he loves to dive into it would find

that interesting you might say hey

you’re seeing anything in the research

yeah that can help us

and you can say hey the technicals are

setting up yeah i will say

i think that’s why we do fit well

together he comes into the day with a

lot of you know fundamental analysis

and he’ll tell me why he thinks it’s

mark is in play then he should do his

part you should be like

initials t-i-m yeah what do we got yeah

this was actually kind of prior to

us um forming that account um but we did

talk about this idea okay

good you know this was a setup in my

playbook

it had great earnings high institutional

ownership

um elevated arvol you know definitely in

play over three

three times its typical volume the risk

to reward

on the day was you know greater than or

equal to three to one

anything under that i really don’t want

to really be messing with

um and of course if you’re looking at

this at a higher time frame you know

over a course of a multiple you know

multiple days if you’re playing

for that bigger move definitely 10 to 1

is realistic with you know some levels

we had in mind

there’s a clear level where i’m wrong

out of all of this that’s probably

always the most important for me

i want to know exactly where i’m wrong

you know worst case scenario

that’s where my hard stop goes but of

course you know more times than not

there’s an exit

prior to that full one-hour loss yeah

and so we’re in a different regime in a

different regime

retail has done very very well yeah

retail is one of the places where big

money is putting

uh capital behind for the reopening

yeah uh and so

that’s something to be thinking about as

well which is

hey this is in a sector that’s getting

big money behind it

and that’s a that might be a variable

for you to be thinking about it’s a

strong sector yeah for sure i agree with

that

um and then the final one is that

there’s a clear level where

you know shorts on this given day are

wrong and likely will cut and that ends

up kind of being my timing point that

consolidation break that lower high

break

that’s where it looked like a lot of

shorts were probably going to be risking

off of and

you know we did end up seeing that when

it did break that timing point you know

the tape was speeding up so that kind of

indicates that

maybe some longs are hopping in and some

shorts are covering covering up

so you can kind of see right here um

we’ll start with the bottom right

is you know we kind of wick down a

little bit and at this point i’m

thinking

it’s kind of hard to see that wick a

little bit but you know we wicked

through

uh 215 and at that point it actually

looks like the idea is not going to set

up and

it’s just not going to set up for me on

this given day but then we reclaim

and i was actually able to take half of

my position right there get some better

prices

that’s something i’m kind of working on

with my team or with the team i’m

working with i should say it’s getting

some better prices

and maybe your win rate is going to be a

little bit lower but you don’t have to

get full size there you can take

something

in this case i took half of what i

wanted

and i’m risking off that wick low and

then we kind of tighten up a little bit

i probably should have you know been

showing a 5 minute or 15 minute here but

this is a one minute

we end up tightening up and flagging out

and that’s where i add the rest

um and that’s where i think you know

shorts are probably hitting out and you

do kind of see some volume come in and

that candle

really expands a bit um so what i’m

typically doing

is on my first reason to sell you know

that can be a target i have in mind or

you know some reason that comes up maybe

there’s a stuff

or a higher time frame breakdown

you know on this given day like a 5

minute or 15 minute typically selling

half to cover risk

and then i really want to see that

second half work out in my favor

typically splitting that second half

into three even lots or four even lots

something like that

now in this case you know i get that

first reason to sell i sell half

then we kind of push again and we stuff

a little bit so i saw another third

of my second half and then we kind of

break down again and there’s

you know in that same candle i actually

end up selling

another third so then we pull back in

and we start to consolidate sideways and

this is again another thing i’m working

on as well is

adding back to that position if i’m

going to stay in it

i still have conviction behind it and if

it kind of builds a higher low

and it sets up again well i want to add

something back i don’t have to double up

i don’t have to you know get out of hand

but even adding a third back or two

thirds back

that’s something i’m certainly working

on and often you’ll get a

you know a new level to risk off of so

you can kind of see

i throw some bids out there i throw a

couple offers out there

and i believe i add back a third of what

i sold

you know from my second half so i’m not

overly big but i add something back

um and now all of my risk is off that

higher low right there

and then we kind of start to build you

know some higher lows again

we start to grind higher and we run into

some problems again

up by 217 and i sell half right there

and then we kind of end up breaking a 15

minute level and that’s where i

end up getting flat you can kind of see

i do end up puking kind of

the remainder of my um shares but if i’m

thinking

you know bigger idea down the road

especially with that account that we now

have

um you know this final piece is

something that we could definitely swing

so couple things so do you see where we

break out

yeah we break out above the flag yeah

all right so

things that we want to say we want to

see

increased volume yeah and we want to see

it move away from price a bunch

i don’t know that we really see that

relative to probably the best trades

yeah that flag and break out i agree

that’s going to get me

to be a little bit more cautious when we

pull in

but point two is if there is

institutional participation

and this is going to be clean and this

is going to go for a couple of days when

that actually pulls in

yeah to the level it broke out from

there should be buying there

yeah and it should be relatively clean

and we actually do see that part

yeah we do see that so i don’t i don’t

i’d love to see more volume

i’d love to see the move away from price

better yeah

but i do like the fact that it’s holding

above that area that it broke out from

yeah

i do as well and we actually kind of

wicked down a little bit

a few times and you could do see that

someone is bidding for some prices and

you know holding this up and exactly we

pull into that

kind of breakout zone that maybe didn’t

do the volume that we would have liked

to see but again

you know we hold build some higher lows

and then we’re kind of off to the races

and

this is something that again definitely

does end up grinding higher over the

next few days and

that is you know the area of improvement

that i can work on

so i don’t have the tape but there was a

moment before the setup

for the long that it looked like it

could roll over and people started

slamming the bids

only for it to reclaim and have offers

lift rather quickly so

you know we kind of wick down i think

it’s not going to set up

you know some people maybe had a long

idea that they were waiting for and then

all of a sudden it looks like it’s going

to break down so maybe they hid in short

kind of look like that on the bids but

instead we wick right

back up and that’s actually where i

ended up taking half of my position

yeah and just highlighting that is a key

signal from reading the tape

a set up like that you think it’s going

to break down yeah

it doesn’t it comes back reclaims the

level

yeah that that is that’s a

see it moment yeah from you’re reading

the tape skills

yeah yeah i agree with that and there

was actually a point where i was like

is this short right here and then i was

kind of looking at it i was looking at

where i was risking where i thought it

could

go and with great earnings the risk to

reward really didn’t make sense to me

um but yeah we ended up wicking right

back up

and then end up you know flagging out on

elevated volume you know again we could

have saw a little bit more volume

and we pushed away from price indicating

that you know the idea was more than

likely going to work and i had some good

prices where

you know i was in a good position of

comfort on it

um we then pull in and hold that 215 86.

yeah just

i just want one more point about this i

actually think that’s something you

might think about

for a tag so i don’t know if you want to

call that

the failed wick i don’t know if you want

to call that

a see it moment yeah from your reading

the tape yeah

probably better to sort of call it a

i think the wick part uh the failed

breakdown

breakdown yeah that that’s worth tagging

yeah in my sentence in measuring that

yeah and seeing if you want to put on a

little bit more risk when you see

something like that yeah for setups like

this

yeah because i don’t think i think

that variable to it makes you want to

put on more risk

than others yeah and my sense is

measuring that will give you some good

information for

your trading yeah that’s something i’ll

definitely do and easy to do with you

know the software we use

um but again then we pull in and hold

that 215 80 level

where i’m able to add back and you know

double back up i guess i ended up

doubling back up but again my cost basis

was still

above that higher low i was using um

and we begin to break out and you know

basically i’m in a risk-free position

where i’m risking is basically where my

cost basis is

um and again this is something i’m

always working on adding back to a

position when it holds up

and you know it sets up again so again i

i do like how i saw the position

beginning to develop and took you know

about half size

um when we do wick down and then wake up

back up so you know i’m happy i did that

that’s not something

that i used to do but again with working

with a few guys

they said why not get better prices you

know so that’s something

where you can improve you know the

reward on this position so

that’s something you know i’m happy i

did

i like the way i was aggressive with my

first half and left a third on of my

final half

and added back to the position when it

you know held a new higher low that i

could see

that i could risk off of

um it was almost like i t wapped into

back into the position but you know

i didn’t i was just throwing out some

bids up as it was holding up but that is

something that i could you know consider

maybe just t

whopping back into it a bit and that’s

kind of an

algorithm that we had that we could kind

of throw out some orders over a period

of time

so that’s something i’ve you know messed

with in the past

an area of improvement is withholding my

final third of my second half

it’s not a lot of size relative to you

know what the position was

but i can hold it for a swing as it

closed you know in the top 25

or 20 percent of the move on the day it

had great earnings

high institutional ownership and it was

on elevated you know

volume of over three so this can result

in a really nice day two day three day

four and so on

um so again this is something that tim

and myself

are working on with you know an account

that we have to

you know together and today you know

the stock has pushed all the way up to

228 so there’s definitely room

to kind of you know make a little bit

Mike Bellafiore Co-Founder, Managing Partner	Steve Spencer Co-Founder, Head Trader
Seth Freudberg Options Desk Manager	Jeff Holden Head of Recruiting
Justin Spero SMB Trader	Garrett Drinon SMB Trader
Ryan Hasson SMB Trader

The Flag Breakout Trade 📈

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