Hello Mike –

I completed reading your book last week and have to say the lessons I’ve learned from it are extremely invaluable to me in my quest to develop into a consistently profitable trader. I have typed up (18) pages of notes from your book that I have been reviewing them regularly in order to pound these concepts into my subconscious.

However, I don not understand the following (2) phrases from your book and wish for you to explain them to me:

1. “If you hit the decrementing (reducing?) big bids as a momentum lot, and buyer rebids, you have to get out right away'”.

2. “Don’t overtrade levels during midday. Algo can easily outplay you with above/below program.”

I understand you’re busy, so please get back to me when you can.

@MikeBellafiore

Question 1: If you hit the bids when the bids are decrementing and the stock rebids this is a sign of strength from Reading the Tape.  As I have written numerous times, the tape is not the only indicator we use to make a trading decision.  However if you are making a momentum play based on the bids decrementing and then the bids refresh/rebid then your trade thesis is disproved.  Thus you should exit.

You hit the bids making a momentum trade.  Your thesis is when the bids drop that the stock will fall.  If the there is a rebid then your thesis was incorrect and you no reason given the facts above not to exit.

Question 2: HFTs are a reality for the intraday trader.  There are trades we used to make that we cannot.  At times it is harder to get stock or sell it.  There is more noise around inflection points that you must learn to spot.  So we trade on a longer time frame, are more precise about our best setups, and sidestep the HFTs.

Overtrading during a low volume period may cause HFTs to hunt your positions and stop you out.  An above/below program is one example of how they do so.  A stock finds an inflection point, say 15 in JNS.  The stocks trades above 15 and below 15.  The shorts cover at prices above 15.  The longs sell at prices below 15.  But JNS is not really moving.  It is just above/below 15 and shaking out the weak-hand shorts and longs.

I hope that helps.

“You can be better tomorrow than you are today!”

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook. He welcomes your trading questions at [email protected].

no relevant positions