We all have our strengths and weaknesses as traders. If you don’t know what they are for either side then you are in serious trouble friend. I know I am a good tape reader when there is good order flow in the stock. I also know what the strengths are for some of those who sit around me. And when they call stuff out that is within those lines of strength then I pay close attention. We have our Chief Technical Analyst – totally just made that title up by the way but sounds catchy, who comes up with great technical setups. We have our great momo guys who can spot places to load it before an explosive move, and then we have a shark in the penny stocks.

I was always under the impression that low priced stocks ($1-4 range) didn’t move, weren’t liquid or volatile enough to be worth watching intraday. But then I also see him flipping through hundreds of charts at night and making mini chops in these dope stocks. So I have been asking questions and finally joined the party.

Over the last couple of months I have been pikering around with some of his plays. By pikering I mean really not trying to take any big risk. I believe some made fun of me last time I showed a video for having only a couple thousand shares of some low priced stocks. But the reality is that I am just feeling things out. I am not going nuts until I get an understanding of my risk intraday and overnight. I want to find out what max size is prudent in some of these not so liquid stocks. The last thing I want to do is rip up my whole month finding things out the hard way. That’s just stupid.

We started partying with PEIX, CYCC, CTIC, CRDC, BEE, and even some under a dollar names, just to name a few. They may be low priced but they can move 25c-50c intraday – CLEANLY!!!. That is just absolutely amazing to me. I just laugh when I see some of those break outs for a 10-15% move without a single down tick. You could really put on some size on them but like I said I’m in the learning stages and not in the let’s crush every play stages…yet.

Last couple of days we have been following ATHX, some dope pharma name. That’s really all I know. Ryan was kind enough to share with me the entry and stop (just a penny away from my entry) and I couldn’t just say no to risking at least $100 bucks on the trade. I liked the chart on the daily. I wanted to put on more on but wasn’t sure what my risk was overnight and thus just decided to keep it small.

I know we were hoping for a break through 3 and maybe make a quarter on the trade. But then mother market was kind enough to push some news our side and I walked into a 90c trade this morning on some size. Talk about making a little chipper off a fellow trader’s idea. I know I owe him drinks, bella says even dinner. Couple more like this and we may be heading to Nobu.

If you sit on a desk where people constantly share information then get to know their strengths. I know over my short career I have made some really good money off information shared by others. Today was a perfect example of a day and even a month salvaged by a great and simple trading idea. Thanks
Ryan.

As I sit here cleaning my inbox listening to some good old Dizzy Gillespie, Stan Getz and John Coltrane I look around the room and find a few hard working shark tank traders ripping through charts. I know their hard work will pay off this week. I love the commitment and desire to improve every day from these guys, it gets me pumped up. I can’t wait to be done with all my administrative stuff to find a few plays of my own to contribute to the tank this week.

Lately I have also been noticing the result of our hard work as traders and educators in the industry. As part of contributing to Stocktwits.tv, Wall Street Cheat Sheet and our blog I have been fortunate enough to exchange a few words with other developing and experienced traders on the street. Last Friday I received the following email from “E.S”. A very passionate and talented developing trader who works very hard at getting better every single day.

“G-man,

Great day to be a trader……FTRS 1100, OIL 75 and Gold 1150 are really going to define where we go next.

One other thing I wanted to mention to you because I watched your blog the other night about how you took time off and wanted to recalibrate…… As a trader you judge yourself based upon your trading but what you guys (yourself, Steve, Bella, J-toma) have done with SMB is transcended that….even when you are in a trading funk your experiences that are shared are still helping others like me become better traders. So just like you guys always say “it’s not about the P&L” it is also not just about the trading anymore, it is about you guys being great mentors to thousands of young traders like myself. So next time you have a bad day “trading” remember that you are still making a positive impact on peoples lives like mine.

Enjoy the weekend.”

I certainly appreciate the kind comments. It is nice of you and all others who take the time to write such thoughtful notes. It makes it worth all the time and effort I/we put into helping others. Personally, It also motivates me to work harder to help others develop into solid traders. I receive a fair number of emails/IMs from other traders with excellent questions and in the process receive some excellent trading ideas from which I profit. And hey, that’s just a cool added bonus! Thanks guys! Enjoy the rest of your weekend.

This market just cracks me up. It is taking me some time to figure out the new patterns but I am slowly getting there. I got a bit tossed around making a relative strength play in JPM on the open and boy did I get destroyed. Well played algos, well played.

On a positive note though, AMZN provided a great opportunity today. I have been trading AMZN from the long side for the last 15 points and somehow have been losing money consistently. How is that possible I wonder. Those dope algorithms are just that good. However, today I noticed the buying pattern was different. The market (SPYs) failed to break with volume above 112 and AMZN put a lower high on a 5 minute chart. The party was on.

The trade was hard as usual while above 144.5. At 12:05pm the stock even dropped the level and was met by the buy the broken stock program. I was getting ready to play the shark tank song on my short but had to put it on hold for another 30 minutes; I was not getting shaken out of my trade. There was just way too much upside on my short. The stock is a bit overbought AND I got Cramer chirping it going to 230 last night – can you say temporary top? But then the sucker got weak after failing to lift 145. 144.4 came down to unleash the fury and the party was really just getting started. It was like the pregame to our holiday party – which by way is starting in about 45 minutes.

Keep an eye on it for tomorrow. The market is giving us a few clues that we are putting a temporary top. Failed break out at 112, GS market leader is well off its highs (remember this one was way off its lows in March when the market bottomed). Wouldn’t be shocked if we gap down a bit tomorrow and fail to rally. Definitely want to keep a short bias in AMZN until firmly above 144.5. Would look to short into a pop to 142.5 tomorrow. I am off to get my drink on. Happy times and happy trading. Gmonkey out

Times are hard for active traders these days. The ridiculous growth of HFT algos with their noise is starting to weed out the unable to adjust, overly frustrated and under capitalized traders in the industry. Last week I heard on the squawk box that Goldman’s HFT operation lost money only one day last quarter. That is just ridiculous. Talk about having an edge.

JP sent me this picture last Friday after we got ran over by the HFT algos in our stocks. (sorry to the animal lovers out there, just a pic we found on the net. That is exactly what happened to the shark tank last Friday)

We had three amazing setups that worked great right from the start. As the play started to develop we were looking for places to add big daddy size to the position on confirmation. The problem was that every time we loaded the boat and thought we had it we got madly shaken out. We couldn’t put ourselves in a position of strength to counter the nonsense in the middle caused by the HFT algorithms. And there’s nothing they love more than a trader in a position of weakness to move the stock to the places that surpass our threshold of pain by just a couple of cents.

I have spent the last couple of days rethinking about how I trade. Thinking about my plays so that I know how to put myself in a position of strength. The adjustments I need to make to my trading to redefine my edge. The plays I need to avoid now to make sure I don’t end up like the sharks in the picture above.

While at dinner last week with a few of the shark tank traders and an honorary guest, we talked about an important concept.  Namely, spending your energy on the things you can control and spending less and less time worrying about the things that we can’t control.   Here is my list of things I can control:

1. Getting enough rest at night.
2. Being in the office by 7:30am to prepare for the day and watch key levels on the stocks trading in premarket.
3. Staying until 5-6 pm looking at my tape, writing in my journal, looking at the top gainers/losers/volume, finding trading ideas for the next day and talking trading with other traders.
4. Being mentally prepared to trade every single day.
5. Sharing information with the desk.
6. Thinking obsessively about your edge and how you need to redefine it when the market changes.
7. Controlling my emotions. (easier said than done but know I can do better)
8. Staying disciplined and patient.
9. Come in with at least 1-2 really good trading ideas every day.
10. Stay after hours watching stocks after hours to identify key levels for the next trading day.

I have witnessed a lot of people come and go in my short 4 years of trading. I can count on my hands those who I think honestly do all the things above.   Most people just come in by 8:30-9am, look at briefing and expect to find something by the open. They are often the ones pacing out shortly after 4pm.   Surely there are a select few that have been able to be successful without worrying consciously of the things they can control.   But they are often the most affected when the market shifts suddenly and their edge diminishes.

I am a victim of worrying and spending too much energy on those things I can’t control at times.   It infuriates me to look at my work and find that I am making perfectly sound trades and I am losing constantly to the dopey HFT programs.  But the good news is that I know that focusing on the things that I can control makes me money.  While I look at my work putting all feelings aside I know the things that work, the plays that used to work that no longer work, and the ones that never worked before fundamentally but now work beautifully because of the “mind fudge” game out there.

So if you are starting to feel the effects of the HFT algorithms it is time to step it up.  I am not the least concerned about my trading.  I know what I need to do and have thought about the changes I need to start making starting tomorrow. Do you?

Let’s start by talking about the shark tank. It all started with one of the traders – JP – calling himself a shark in some non-trading conversation. Unfortunately for him his mentee who sits next to him – RB – heard the silly comment and lost it. Over the next few days RB would just not let it go. Quickly every one around JP caught up to the joke and we kept on calling him the shark. JP went from this is really not funny with the shark comments to actually embracing the name over the next couple of trading days. Now every very well thought out trade that comes out of our 8 person area – the shark tank – is called a shark trade.

A shark trade is a trade in which you gather information, you trade into a position, you accumulate stock, you buy when it looks awful on the chart but great on tape. It is a trade that requires the person to be in for an extended period of time. It is a trade we put on in anticipation of a break. There is a lot that goes into the trade is what I am saying. These are the trades that make your day but not many traders are interested in being in because it is not an instantly rewarding / high flying triple leverage trade. It is a trade you have to be extra patient in.

To better amuse ourselves we now play the shark theme song as a way of alerting those in our desk that it is a play everyone should consider jumping in. We alert those in our desk of the trade while we are still “chumming” – while the trade is developing. It really makes up for some good laughs when you hear the song.
To be part of the shark tank you need a couple of things: 1. a good sense of humor 2. have a similar trading style 3. Believe and implement the risk management system we use. And it is the latter the topic I want to briefly talk about in this blog.

RB struggled for a couple of weeks. He was losing his mind. He was getting stopped out almost every day. But then he started to implement the risk management strategy I talk about all the time: Scratching 70-80% of your losing trades. His numbers improved 1000%. He went from getting crushed every day to now having barely any swings in his pnl.

The Shark Tank Risk Management System (STRMS) consists of always locking in some gains in any trade to cover your risk and letting the other 50-70% of the position get stopped out if necessary. This goes for any trade: a low/high probability scalp or a trade2hold (aka a shark trade). So if you make a trade with 300 shares in which you risk 2c in, and the trade goes 8c in your favor then you get out of 100 quickly. And then you let the other 200 shares do its thing – whether that is making 10c, 25c or more in them. If the trade never gets to your target and you get stopped out on the trade you actually end up making a whooping $4 on the trade ($8 gain on the first 100 and $4 loss on the 200).

Yes it minimizes the amount of money you make but it has a very powerful effect on your PnL. Namely it makes it that much harder for you to ever reach your stop out limit. It minimizes your risk to a great extend. It makes you scratch a trade in which you normally would have lost if it never got to your desired target. It adds consistency to your game.

I know RB has started to turn the corner in his trading. Implementing the STRMS has changed his numbers around..and dramatically. It can certainly help you as well.

Enjoy the rest of your weekend. I am off to find a last minute costume for tonight’s shenanigans. By the way, that all you eat sushi – all you can drink beer/sake for $30 is awesome. That is definitely a shark trade. Can’t remember the name of it but its on 11th and 1st ave. Delicious!

The traders expo in Las Vegas is just another great excuse to visit Sin City and it is just around the corner (Nov 18-21st). We would like to continue adding value to your trading while there and we need another excuse to go have some fun.

Rather than doing a booth setup advertising our training products we are interested in doing a seminar. Or we may just do both.

We have received some good feedback from traders who have gone through the Reading the Tape program. So naturally this would be a great topic for the seminar. Additionally we would talk about risk management as an active trader, high probability plays from the tape, and trading in pre-market and after hours.

We would like to hear about your experiences at the Las Vegas Expo. How much value do you get from the expo? How can we make the experience more valuable for you?

At this point we would like to gauge the level of interest on attending a 1-day seminar for a small fee. Please send us an email to inquiries@smbtraining.com if interested. Hope to see you all there.

Today I made I mistake I rarely make – I let my bias take over my trading. I came in with a small overnight short in MGM and in AIG. Both showed huge relative weakness yesterday and both were working great in premarket with the gap down. The plan was simple, I would add to the positions once below important support levels or short into resistance levels established the previous day.

I wanted the sucker to plow through 43.5 so I could add to my short. I wanted it to break below 43 so I could crush the stock. I am trying to buy a place in South America and I was thinking if AIG went down to the mid 30s I would have some extra cash to furnish the place big daddy style… oh yeah, mistake number two. Can you say focus on the trading and not so much and what I would do with the money if I crushed it. yikes!

AIG went nuts right before the open for lack of a better word. It went from 44.4 to 43.3 back up to 44.5 through 45 back down to 44.5 all in less than a few seconds – could have been a couple of minutes but it was fast nonetheless. Luckily I was shorting into the pops and covering into the retarded downticks. It wasn’t fun and certainly got my heart pumping for a second.

The market opened and AIG was screaming as a long on the tape. I was a half point + in the money with some size and I didn’t cover. I let my bias of the tape and relative weakness from the previous days cloud my judgement. I tried but not hard enough to cover some of the short and before I knew it I was getting taken for some shorts at the prices I wanted but then it turned ugly. That sucker was getting ready to party on the long side. My out was above 45.6 and I could tell I was fighting the momo but I refused to cover and get long as the tape indicated it.

My day would have been a lot differently had I actually traded the dopey stock appropriately. Luckily there was plenty of opportunity today in HOG, WYE, and the casinos for me to make back that silly rip. I wrote down plenty in my journal to remind me in the future of how quickly I can get in trouble when I let a bias take over my trading. Hope your trading day was a lot more fun than mine. Happy trading!

As part of our training process we ask our remote and in-house traders to tune into our training calls. I was trading AIG in the close and was leading the call. I received a couple of emails from some new trainees who were just confused by my style of trading. Their questions and comments are quite valid and educational so I want to share their concerns/comments with you.

But first let me put the trade into context. AIG was relatively weaker than the market all AM and we were short, chop. Around 10:50am the selling pattern changed and the stock had a powerful up move. The stock pulled back to great levels where the selling pattern had changed and the stock was accumulated and we got monkey long near this accumulation level. The stock had close to a two point up move off these levels – chop Gman. The stock pulled back later in the day close to 42 and got to 43 and change by the close. I got shaken out of the long and didn’t catch that last leg to the upside.

The stock was setting up as a nice long in the close above 43 with confirmation above 43.5. But then the buying that took place between 42.20 and 43 changed. The stock got weak. The 43 offers were not lifting. There wasn’t a ton of volume at 43 so I wasn’t convinced on the short just yet… My point is that I traded the stock all day. I knew how it traded and I had a great feel for it. I knew the levels. I knew the buying and selling patterns in the stock. I knew what the ticks meant.

Around 3:40pm the tape indicated weakness around 42.92 and I knew I had just missed my chance to load up with very little risk around 43. So I started the whacking parade on the bids. Three seconds later 42.80 dropped and the stock down ticked hard. Party time for my short as I had just gotten confirmation.

So when the stock stopped at 42.5 I knew it was likely that it would trade up a little bit before going down lower. It needed to show the weakness and I wanted to short into the up move. I kept a small short from the 87c initial shorts and just wanted to add to my short. My comments in the call were interpreted as I was just shorting and shorting some more on the way up until it turned. And I want to clarify that point. So let me address the questions one by one as they were presented:

1. Why am I am getting in and out of the stock?
I didn’t get the prices that I wanted to short aggressively initially and I was not going to miss the move as I had identified my edge. Once the stock confirmed my bias it was just a matter of finding a spot to load up with very little risk into the up move. Doing so lowered my risk. I was not just going to load up and put a stop on the trade. I trade the stock. I do not load up and pray for the move to take place

2. Why am I just shorting the stock while it is going up? It seemed like I was just short the stock knowing/hoping it was going to come back down.
I was not. I was TRADING the stock. I know my out is above 43 but I really do not expect the stock to trade above 87c (that’s where the tape told me it was weak and that’s where the move started from). So the stock goes from 55c to 65c I see selling at 65c so I get short 1 lot at 65c. The stock rebids at 60c so I cover 0.5 lots on the bid for a small gain. 65c lifts and it slows at 73c so I get short 2 lots. It stops at 65c so I cover only 1 lot on the bid for another small gain. Then it pops to my price at 80c and I am now fully loaded 5 lots. Yes I have been shorting the stock for a quarter but in fact I have been making money on the shorts while going up and with an average price on my big short of around 76-77c.

3. Why not wait for the stock to get to the prices where you really want them.
I really wanted the stock to get to 80 cents for me to get the big shorts. But what if it didn’t and it started a down move? It was not going to go down without me that’s for sure. That is what happened to begin with – I missed the big shorts near 43 but I was short. I just had to adjust my size to account for the increased risk. And I hate hitting the new low because I know Goldman is printing money with that strategy and I refuse to let them take mine. I adjust my style to account for that so I short into pops. Yes I shorted the stock for a quarter but I actually made money shorting while the stock was going up and got my biggest size at the price that I wanted. I call that trading

4. Did I really have the 1:5 risk reward we look for in the plays?
They were all part of a much bigger trade. On every trade I risked a penny or so for a chance for the stock to 42.20 if I got lucky – so the risk:reward was clearly above 1:5. But I also understood that the stock was not ready to go down the moment I got short into the little pops. It needed more volume. It needed a catalyst. It needed to shake out weak hand shorts. I needed to see the selling pressure over-power the buying pressure. I was not shorting my heaviest until I got the risk:reward I wanted. But I also knew that if the stock didn’t go to 80c I was not going to miss the short.

Look the truth is that my style of trading is very different from that of many traders on the street. I do not believe in loading up and either losing on the position or making a chop. I scratch most of my losers and make a chop on my winners. Let me repeat that: I scratch 70-80% of my losing trades. I do this because I trade the stock in and out. I trade constantly in and out to identify when the stock is ready to go so I can load up. When I am fully loaded I am comfortable with my position. I am in full control of the position and let the market determine whether I crush it or I scratch the trade.

For Alan and Isaac I hope this answers some of your questions. I know I get a bit caught up in what I do and can see how if you do not know how I trade it can come across the wrong way. Do send me an email or write a comment if you would like me to further clarify something. Happy trading. Gman out!

We teach our traders how to trade while taking little risk in the marketplace. We teach them the fundamentals and then allow each trader to develop a trading style that suits their personality. Further, we give each trader the freedom to trade whatever stock happens to be in play and in a fashion that suits their style. Unfortunately, this allows for some funky/fancy trading by some. Often these fancy traders are rewarded big for doing the wrong things and this scares me. Let me explain.

We emphasize finding opportunities where the risk is 1 unit and the reward is at least 5 units. Some of our traders have developed a style in which all trades have 1-3 cents of downside maximum. It is rare to see some of them in a trade that offers 2+ points if the original risk was 10-15+ cents.

Why? Because they are not prepared to adjust to trading with smaller size to take into account the extra room needed. And when the stock starts to go in their favor they struggle to hold such small position because they are used to each penny being so much more. What a silly mental hurdle.

On a positive note I admire the amount of hard work that goes into finding plays where their risk is a penny or two and their upside is a dime, quarter or more. No complains here yet. However, the risk is almost always best defined to a penny or two when you are playing against the trend. And this allows for some abuse by traders with a scalper mentality. And this is a huge problem!!

Do not get me wrong, there are counter-trend plays that I make when the risk-reward is favorable. But they are certainly not trades to have my biggest size or trades I try to hold for the big move. These are trades in which I am happy I make my nickel, dime or quarter. But I use those extra profits to take pain getting on the right side of the trend!

Further, my list of these plays is small. And I certainly will not make these trades to give up a really good trade2hold position in the direction of the trend. Nor will I make the trade if I think there is a chance I may miss the move on the side of the trend if I get shaken out on the flip. Most importantly, I will not make these fade trades when the trade is fundamentally wrong. Namely, buying near the low of a broken stock.

And this is where I have a huge problem. I am seeing some of our young traders take retarded size on these plays and get rewarded big for doing so. AIG was a stock that came down hard on the open but all new lows were met by buying, always leading to a significant squeeze moves. The up moves were quite dramatic and those long were often rewarded much faster off their entries than those getting short into the up moves. In my opinion, the abuse of this cuteness leads to a terrible habit to get into – fighting the direction of the trend, even if it is for a few seconds. This in part leads to losing focus of the big picture in the stock and keeps a really talented trader from crushing an easy move.

After the close I lost my temper with one of our guys. His argument was that it made sense to buy in front of $50 in AIG from a risk:reward perspective right on the Close. He claimed the risk was only a penny or two. But was the real risk really a cent? What if getting out of the position and flipping cost an extra 5-10 cents of slippage? Further, what happens if the moves are not clean after you flip and you get out for a second loss in a row? Will you get on the trade again when you noticed you were shaken out? What if that second try doesn’t work again? What if you miss getting into the trade much later in the move and then you take another loss because your entry price SUCKS? Oh wait, most of that happened to someone. Also, what about the failed bounce attempts? Is it worth it to buy so close to levels where people have been buying/holding above for a few hours?

To me the biggest risk is not the 2 cents. It is being able to be in a huge position of strength. Having that flexible of a bias keeps a trader from being in the big picture play. Namely, shorting into the pop after the stock made a new low. After the stock was broken. After the stock failed to bounce. After it had showed strength and failed twice. This all happened once 50.25 was taken out, the stock made a new low, found the retarded buy-the-new-low program and popped to levels where there had been a lot of selling previously. Thank God the stock collapsed and some guys where able to make some money on the short. I bet if there had not been a catalyst there would have been a lot of complaining around that 50 level and how AIG sucks.

Best of luck with your trading! Don’t forget to follow us on Twitter!

We have gotten some comments and emails from some fellow readers asking what is included in our Reading the Tape program so we prepared this syllabus.

SMB Reading the Tape Syllabus

DAY 1: The Basics

The Basics

1. Two quick written lectures on The Level II and The Prints including a Glossary.
2. One 15-minute audio lecture on the Prints complimenting the written lecture.
3. 1 hour and 15 minutes of video lectures on The Level II and the Prints.
4. Multiple-choice quiz to reinforce your knowledge on the Basics: The Level II, Jargon, and Prints.

The Indicators

1. Four written lectures on the Reading the Tape indicators
2. 5-minute audio lecture and 10-minute video on indicator # 1.
3. 30 minute video compilation that includes examples of indicator #2.
4. 20 minutes of video lectures on indicator # 3.
5. 2 Multiple-choice quizzes to reinforce your knowledge on all of our indicators

Psychology of Tape Reading

1. Two written lectures on: “Thinking like the Big Player” and “Always Analyzing your Positions”
2. 1 hour of video lectures complimenting the written lectures

Proper Preparation Before Trading Plays & Execution

1. Two written lectures: Times of the Day & Important Questions Before Each Trade

Putting It Together

1. One written lecture on some notorious print patterns and a multiple choice quiz to recap the day.

Day 2: Trading Plays and Trade Execution

Getting Trading Ideas from the Charts

1. Three written lectures on the following topics: “Seeing the Tape from the Charts”, “Adding Probability to Chart Plays”, and “Different Lots, Different Plans”
2. 35 minutes of video lectures to compliment the written with examples.
3. Multiple-choice quiz to reinforce your knowledge on Trading Ideas from Charts.

Trade Execution

1. Two written lectures on “Proper Execution of Scalp Plays” and Proper Execution of Trade2Hold Plays”
2. Four hours of video lectures with 9 examples of different scalp plays and 6 examples of different trade2hold plays
3. Multiple-choice quiz to reinforce your knowledge of “Proper Execution of Trade2Hold Plays”.
4. SMB Reading the Tape Cheat Sheet

SMB Webinars
1. Access to 30 hours of archived webinars of our past video review sessions
2. Access to our live video review sessions