in this video learn the essential
trading indicator that you may need to
add to a trade strategy to make it
profitable hi I’m Mike bellafiore
co-founder of SMB Capital proprietary
trading firm located in midtown
Manhattan and I’m also the author of the
trading classic one good trade in the
playbook
well in this video alan mcgrath veteran
Australian equities trader and
well-known trading mentor and I team to
teach a developing trader how to make
his trade strategy profitable
[Music] this is a trade that I called a momentum
inside fiber or the mif and I got two
examples we’ll see how minute how much
time we have if I can get to both but
the first one came with JD comm and this
was on November 15th of 2019
there’s a nice set up that was happening
in JD that day so it’s a two-year chart
from the highs back in January of 2018
down to the lows over here in late
November early December and there was a
but we were at about a 50% retracement
from the highest to the lows at that
particular point JD had just reported
earnings the day before and we had a key
resistance level here in about 34 68 so
you can see it coincides with the 50%
retracement as well as where the stock
moves relatively work and closed the the
prior day
so JD is they operate in an e-commerce
company or an e-commerce company and
retail infrastructure service provider
in China with two main segments their
retail business and new businesses
basically they’re the Chinese Amazon a
year earlier they were mired in a CEO
rake scandal but all that looks to him
past and from Steve Spencer’s pre market
commentary maybe revenues by five
percent twenty nine percent
year-over-year growth
now I’m gonna freely admit to you Mike
at the outset that I need to get a whole
lot better at being able to read the
news and and figure out how how to trade
it best like I’ve seen a lot of the
reviews that you guys that you’ve done
with with your junior traders and your
senior traders and they know so much
more about what’s going on fundamentally
and are able to apply it to the trade so
you know so there’s a lot of different
ways to look at markets and we have a
special guest in the room all the way
from Australia Alain McGrath who is a
veteran Australian equities trader and
has mentored tons of traders
successfully there we were just at lunch
and you have a little bit of a different
take on how you look at markets
terms of looking at news yeah and I knew
you were gonna throw that one to me
I actually don’t read the news and I try
to take as much a head in the sand
approach as possible in that I don’t
want to have my vision of the price
action impaired in any way by having
some sort of predisposed opinion of how
the report reads so yeah I choose to say
very ignorant to the fundamentals of the
mood from other pipefitting I need to
know is in the price action yeah so you
know there’s many ways to skin a cat and
and I take my hat off to the the people
who do use fundamental knowledge to to
base their trades on but I certainly
find it it’s it’s an anchor for me
because I make my worst trades when I
have an opinion and the market has a
different opinions so I like to keep
them keep a blank canvas as much as I
can and some of the better guys that
prop X did they all file that they all
follow that thinking or some of them
dive a little bit deeper into the
fundamentals oh absolutely they do yeah
in our morning meetings as always
traders that that will be analyzing
whether a result was a beat how it
compared to market what was expected
underlying sector strengths and
weaknesses and so on and I’ll listen to
that but I try very hard not to form an
opinion on it
Thank You bulk because I actually that
actually makes me feel a little bit
better it’s so in some ways but the
question that I was asking then at
around you know the the free market
hours that was at such an important
technical resistance level is all the
good news priced in so basically I was
gonna be going off exactly what you just
described if the price action was gonna
tell me that we were gonna extend higher
then I would go with that trade or if we
were gonna start to sell-off then I
would go with that trade as well so here
are my stock stats my checklist that I
was going through that particular
morning I had average volume in JD’s
about 11 million which is above a
million which is check for me free
market volume it’s about 15 percent of
the average daily volume I just wanted
it about 10
80 are about point eight six is about
point five gap of four point two percent
larger than that by three percent on my
checklist short float four percent so
I’m saying here the risk of short
covering rally is low and institutional
ownership forty one point three nine
percent Mike this was something I wanted
to ask you about but I think it’s gonna
take too much time I you can certainly
cut me off and tell me to move on that’s
how you do a video the other day where
you had a guy he had over a hundred
percent it’s to still ownership and you
mentioned that that’s the risk of
institutions being short so they could
be short covering at some point during
the day but when it’s so low like this
will they what does that would indicate
some type of support that’s going to be
available for the stock or would you
want it to be in the 90s in it somewhere
around there yes so if the institutional
ownership is higher as opposed to lower
that is going to make a difference
potentially in whether or not a stock
that sold off a bunch gets supported or
whether or not a stock that has good
news to support it or in this case
whether or not a stock that’s trying to
reclaim where it was in the past starts
to catch a bid from some some more
big-money traders in your case when
you’re trading something like JD I mean
the biggest mover of JD recently if you
had asked me you know what’s the big
picture for what moves JD recently it
would be the us-china trade war and
that’s it’s a really good proxy for
trading the us-china trade war it’s been
you know one of the go-to stocks that
you might want for exposure to China
when news is good or news news is bad
long or short yeah you know certainly
one of the one of the better movers so
yeah I mean this is it’s you know
institutional ownership that’s it’s a
little bit more on the on the lower side
want to be factoring that into our
decisions so you have long term
technicals identified okay you got your
short term
technicals identified as well okay yeah
and I’ll just sort of say because they
know I’ll get questions about this so we
like to put variables together to make
trades we say this quite often which is
there’s lots of different ways to trade
and so for us we’re gonna know what then
we’re gonna want to know what the news
is because one of the difference between
the US and Australia is that we have
more algorithms one of the differences
between the US and Australia is it’s
harder for us to read the tape these
days then it used to be and then it
would be in the Aussie markets but there
are traders that do not want to know the
news do not read the news would trade
poorer if they knew the news we teach
you guys at the start to look at the
news and put that together when you’re
trying to make certain trades we are
looking for things that are going to be
a little bit more directional the news
gives us a way to identify some of those
stocks that are gonna be the Jake charts
up really really strong with the Jake
charts down really really weak if we’ve
got really we’ve got a really really
positive news catalyst it’s unexpected
that can bring in a lot of buying we
have a really really weak news catalyst
the downside that can bring a lot of
selling and so no right answer to a lot
of the stuff but but I think a good way
to start for you to be developing your
PlayBook there will be one there’ll be
one of you in the in this room who is
just going to be a flat out scalper and
if you’re gonna just be a flat out
scalper it’s fine if you don’t want to
know all the news if you’re gonna be a
swing trader if you’re gonna be some
sort of hybrid swing trader you’re gonna
want to put the news into your variables
well for the most part so this is the
long term technical analysis I already
showed a picture of this on the two
previous slides just identifying the key
since level of 3468 right now prior
long-term support oh oh and just the 50%
retracement from the all-time highs to
the lows from fifty fifty eight sixty
eight down to nineteen twenty one
so next slides got the short-term
technical so here was the prior 52-week
high support which is now resistance in
the pre-market and 3409 here’s that
long-term resistance level that I had
identified aftermarket high resistance
at about thirty six and then once the
the institutions start coming in at
about seven which is what Steve has been
saying in trader DNA that’s a pretty
good resistance around thirty five
thirty nine thirty five fifty area so
there’s my short-term technicals so now
there’s my general trade management for
the momentum inside fiber on a risk
basis my stop is gonna be my daily stop
for just getting away from my desk is
gonna be able about one percent of my
equity and my single trade risk right
now I’m keeping very low at point one
percent of my equity as I continue to go
through the DNA for this particular
trade my focus is just on the first 60
minutes of trade using five minutes
sharp my setup I got criteria one I need
the first two bars to close in the same
price direction relative to the V walk
second criteria I want the inside bar
and it doesn’t have to be the second
five unit borrow the prints it could be
the fourth five-minute bar the prints
just need an inside bar that’s going to
be less than seventy five percent the
size of it smuggling bar and my trade
entry I’m going to initiate it upon
breaking the inside bar in the direction
that price was moving my stops gonna be
fifty percent the size of the inside bar
right now I’m shooting for target of for
our and management at this time which
was about a month ago looking to add I
wasn’t necessarily at that level yet I
just wanted to get comfortable with this
particular setup and see how it was
going to start working for me and if
stopped out I’ve looked to re-enter at
the same level because what I had seen
when I was just back testing it it was
only for about a couple weeks and I was
back testing
at trades like this where if a stop out
occurred re-entering at the exact same
level with the exact same stop and the
exact same target actually ended up
producing some pretty nice results one
of the other things I was going to do is
when managing these traders pay close
attention to the flip what I’m calling
the flip which is the switch from the
hourly 9:30 bar to the hourly 10:30 bar
and then just in general just to let the
trade play out Alan and Alan any
thoughts if you want to learn three
real-world setups that our traders use
including the simple setup that we teach
all of our new traders and the setup
that turned one of our traders into a
seven-figure big money earner check out
the free webinar that we’re currently
running just go ahead and click the link
that should be appearing right now at
the top right hand corner of your screen
that’s gonna open up this free
registration page in the new window so
don’t worry you’re not gonna lose this
video you’re gonna learn more in a
couple of hours from this trading
workshop then from years of online
education not really except for me given
where we’re dealing with a catalyst on
market open oh I’m probably waiting for
the market to give me the signal to add
rather than a set bar or set pattern to
set up I’m just waiting for the for a
discretionary moment where you know I
feel where I feel that one sides getting
on control in control I might want the
the confirmation by a break of your your
two bars or or whatever your individual
setup is but I’m really looking for and
again it’s it’s it’s different for
everyone but I’m just really looking for
a sign that it’s the right the right
time to take that trade I’m a very
discretionary trader though so I can’t
comment too much on on you know someone
that has really solid and I really love
that I have really solid rules but it’s
certainly a different way of looking at
things than I have and the same as
targets as well I tend to my target is
is when the markets telling me that
that the trades getting tired and I
might start to phase out once that
trades feeling tired but I wanted to get
to three point eight hour and not take
any off the table because I wanted for
if the markets telling me that’s enough
so I want to listen I want to have some
guidelines but then I want to be willing
to to amend those guidelines if the
markets telling me – yeah so Alan are
you talking about getting additional
confirmation from the overall market or
just from this particular stock that I
would be focusing on from the from the
particular stock and probably in this
case because you’re dealing with a
catalyst it involves the China trade
deal
I’d be looking what other stocks that
are affected by that deal are doing as
well yeah thanks thank you so you’re
gonna look for more confirmation from
the tape from the level – from the order
flow yep you’re gonna want to feel that
the stock is stronger weak yes from
though from the level – from the order
flow a little bit more than the criteria
here yes but that doesn’t mean that’s
right or wrong that’s just how our tribe
yep
know exactly what you’re saying has
actually been playing out for the past
three weeks as I now I I’m not a tape
reader at all right now but what I’m
finding just by watching the stock trade
is I’m getting more information by
watching it then sticking to my you know
set rules that I have in place there
were two trades today that I could have
taken off at about a two hour or a two
and a half hour but I didn’t because I
was sticking to this for our target and
ended up losing on them so thank you
very much I appreciate that
alright so on to the specific trade
management for this guy initially opened
the first 5-minute bar here opens below
V WAP as does the second one and it just
so happened that the second one did go
inside of the first one so we also saw
there indicated to me a potential trend
down day second bar went in sighs I’m
sorry
inside the size of it was 32 cents
mother bar was 81 cents so that my trade
criteria was met and then I shorted at
the
break first inside bar the second
5-minute bar once it got below there
that’s when I got in my target was down
here at $33.99 with my stop up here at
34 84 so as the trade started to play
out I got a nice big candle down on the
fourth 5-minute bar and a little bit
more extension on the fifth and this
support here there was a prior 52 week
high at 3409 looked like he was starting
to hold
3406 was low on that one so I’m starting
to get a bit of a retracement coming
back up here and then there was a
consolidation these three small 5-minute
bars actually ended up being an inside
15-minute bar and they are below V walk
and I certainly could have added at this
point but I think as I mix it to you
Mike in my email when I initially
emailed you about this I was just
nervous about having a positive example
to show you and also I’m not I wasn’t at
the time good at adding and reading the
action of what was going on but in
hindsight this is what I saw here at
this point with these three
consolidation bars because and there was
another nice breakdown it did put in a
bit of a higher low compared to the 3406
but it didn’t put in a higher high which
gave me a little bit of confirmation
that maybe my target was going to be hit
so then the 3406 support was broken all
right so tell me why you get short so
three short at 34 67 below long-term
resistance what is the specific reason
why you are short the reason why because
it met my trade criteria the price
actually met my trade criteria I go back
to that and explain that to me again
so my trade criteria set up so I wanted
the first two bars to close in the same
direction price direction relative to V
well so the first bar second bar they
both closed below
D WA and then my second trade criteria
is I wanted an inside bar less than 75%
the size of the mother bar which is what
I had here with the the second bar $0.32
the mother bar was 81 cents for this
to actually work what are you gonna need
to add to this criteria trade cannot
work is presently constructed what do
you need to add to this you need a
volume indicator for this Oh what are
you looking for with regard to volume
well you want in I mean you want to you
want increasing volume you want to know
go back to your trade slide so you want
to know that these two bars that are
closing in the same direction are
meaningful and for you to know that
these bars are meaningful you need to
confirm that with elevated volume and so
there’s lots of different ways you can
come up with you’re seeing additional
volume with these first two bars but
you’re gonna need to add that yeah and
so in short what I mean by that is those
two bars need to be meaningful and they
only are meaningful if there is
additional volume in those two bars as
compared to other types of moves you
could just have two bars that are in
this case red with very very light
volume and would mean anything right
that’s what you’re trying to say Jake
yes yes we’re all trying to say that all
right good thank you all right so where
I left off was number seven year where
the 3406 support was broken came within
three cents of my target at $33.99 and
so I like I mentioned before it’s just
wanted to have a positive positive
example so I actually moved my stop to
the top of the one-minute bar sweet I
switched to a one-minute chart on this
and ended up getting stopped out at 34
sixteen roughly for a three-hour game
but what ended up happening the way much
the trade ended up playing out was there
was a nice move below that 3406 that
ended up
a hammer down here in the bottom and
that’s a point where I could have
covered some right there and then I got
for number nine here I could have
reentered either on this shooting star
or this shooting star I’m here and then
as the trade continued to play out as we
went into the afternoon I’ve heard you
mentioned before Mike on other other
videos where you say look for the real
move well here was the here was the real
move where we got a nice push down here
in price
not necessarily in volume but now that
you guys are mentioning it here’s a bit
of elevated volume as you got a nice
nice collapsing in price here and this
would have been a real nice spot to to
close the entire trade out it’s the jig
chart and so when we see jake charts
like that jake charts our directional
clean smooth and you know when we go
back and review these charts we want to
try and figure out you know why that was
you know why was it so clean why were
you so right to be trading this I didn’t
hear that yet from your presentation and
maybe you sort of did this you know why
do you think this trade works so nicely
well there what’s the additional
catalyst coming from the overall market
where we had the China News where the
trade deal was in jeopardy but then the
other thing that I can postulate that at
this time I don’t have confirmation
right now but that that the the news
were for a JD was priced in and it
actually had a good technical level
we’re selling could occur you know what
you can’t do is walk away from a day
like this and say well the first two
bars closed negatively therefore the
trade worked that isn’t the takeaway
from this trade all right a better trade
is we’ve got a news catalyst we’ve got a
negative news catalyst for this
particular product we’ve got a
particular strategy that works well with
elevated volume on this particular trade
and price is confirming
that this is really working does that
make sense so the trade is so-so a good
trade is a news catalyst with to canoe
with to clear red bars in the same
direction below view up on elevated
volume does that make sense yes it does
okay that is that’s a better trade
that’s something for you to study for
you to for you to measure for you to
back test maybe it work for you maybe it
won’t but that is that is a trade worth
study over all dinners as I continue to
go through DNA right now I’m setting my
rules to be rather concrete so you’re
suggesting than to get AI have more
discretion you know I like I like you
having concrete rules I think that’s a
good place to start
I think Alan’s point is excellent which
is as you get more experienced you’re
going to make a decision as to whether
or not you are more of a field trader or
whether or not you need to be more of a
systematic trader and so good to start
with organization and then be cognizant
of how you want to attack markets there
gonna be some people like shark for
instance shark is a field trader shark
does not want to be a systematic trader
that takes him away from his particular
cognitive strengths okay Austin would be
more in the systematic organized thinker
type of way and so he’s not gonna be
totally systematic but he’s gonna want
more structure behind his trades where
that just wouldn’t work for shark both
of them have excellent success looking
at markets a little bit differently
there’s a whole heap of space in-between
those as well you know and and that’s
where it’s important to find where you
fit and for me if you go back to your
five minute chart was it betrayed if
you’re in that trade and you’re looking
for four reasons to stay in it there’s a
couple there and and one almost right at
the beginning you know when it dumped
and it almost got to you
target if that had powered straight back
through the vo up and stopped you out
you were so close to your target and
you’re taking them off and it turns into
a loser like you said so that’s that’s
where I’m questioning my target was
there which meant I I had a feeling that
could be a level that’s bounced it might
bounce from its bounce from just above
there so should I take some off at least
your highlighters there it is exactly it
for me the first point that suggests I
am on the right side of this trade
because it failed it to be wipe almost
perfectly so is that a spot in future
that I can add to this short especially
if I’ve taken some off near the bottom
is this a point I can add because it’s a
little bit of confirmation with low risk
if if I if I add a little bit as it
fails it to be what I can always cover
that if it breaks back above it but
there’s there’s one point for me and the
other point is you’ve got you your two
arrows there that your support at 3406
and the next one that makes you higher
low when it when it bounces at point 8 9
on your slide so if you go across as it
as it bounces where that big arrow is at
at dot point 8 & 9 on your you know that
level where it bounces to is basically
at where that previous support was so
the previous support on the 5-minute
that yellow line that’s held held a
couple of times early has now provided
resistance so it’s another little bit of
confirmation that you’re on the right
side of this trade support off previous
support office often becomes resistance
it’s become resistance almost again to
the dot and there’s another little bit
of you know you collecting little pieces
of information that tell you you’re
still on the right side of that trade
one of the things Mike that I really
liked and thank you
that I’m gonna incorporate now in my my
journal daily is the question that you
just asked me which is why did this
trade work that’s the question I’ve been
asking myself when I go to do my journal
at the end of the day so that’s
brilliant thank you yeah particularly
when the stocks are really clean really
clean and strong really clean and weak
those are trades really really worth
studying right good
so on my review here watching us and be
traders go through this exercise online
and and YouTube has been eye-opening
obviously doing it with you guys is even
more eye-opening and for have Alan here
as well adding additional commentary is
phenomenal
so for me to actually go through this
the first time has been incredibly
impactful i’m unwinding so many bad
habits that i developed over the years
it’s given me opportunity to think about
executing trains very differently than
in the past taking my focus away from
just quote-unquote making money now or
trading like BNL which is a huge problem
that I’ve had in the past so I got a lot
more to learn I’m not even have just
finished module 5 and DNA and I
anticipate incorporating level 2 data
into my analysis as I get further into
it about a month ago an additional trade
idea that could have come out of this
was JD had the potential for a good
second date play if that 52-week high
resistance held and it could have moved
down to 32 and the next day yet next
couple days it actually did have a nice
move down past 32 I hadn’t taken the
trade but that was a potential that was
there alright great appreciate you
sharing that with us dr. MTV thank you
oh thank you Mike and arrestor you guys
sound everybody appreciated a special
thank-you from smb2 veteran trader and
mentor alan mcgrath for helping us teach
this developing trader and SMB DNA
student now it’s your turn which
effective trading technique discussed in
this video are you going to implement
into your trading are you going to pay
close attention to volume when designing
a trade strategy or are you going to
incorporate reading the tape like Alan
and SMB does with your trading let us
know by leaving a comment below right
now