A guest post from an SMB trainee, TO:

Bella has the entire floor working on their Playbooks on a daily basis, in order to take internalize our best plays. Here is one of my plays on MOS last week.

1. Big Picture: The SPY’s were in an intraday downtrend in the 116’s and next support was 115.
2. Intraday Fundamentals: MOS was in-play off earnings. Q1 EPS was 1.17 vs. estimates of 1.29. There was a slight gap down.
3. Technical analysis: MOS was in a downtrend and consolidating at the lows near 55. The next support level was 54.50 (the 6-month low) and after that, it would be 53. A new 6-month low could have considerable downside.
4. Reading the Tape: there was some selling at 55.10, maybe a held offer.

This is simple bread and butter strategy at SMB – getting short on weak stocks that are in-play. Trading with the market on a market stock is a bonus. I have many other playbook entries with very similar variables. However, in this scenario, I chose to watch the stock rather than jump in short when we print a new low by 1c. I’m not saying this isn’t a good trade, as I very well could have missed out on profits for the times when MOS has a clean break away from 55. But there were two factors that made me wait:

1. I did not watch MOS trade at all until that point. I knew from pre-market discussion with other traders that it can be a spready stock with some vicious algo trading.
2. It wasn’t yet long-term broken until we were below 54.50 so there could be some accumulation between 54.50 and 55.

There was sideways price action which defines my risk, but was that really my true risk? Yes, if I’m just hitting the new low for a scalp. But if you’re trying to trade a bigger picture idea (and that’s generally what our playbook consists of), sometimes the real risk is having to maneuver in and out of a stock and getting stopped out on multiple tries before finally having a clear signal that your idea was right or wrong.

There are other subsets for a short entry that were still possible. We could hold under 55. We could break 54.50 and I could hit the new low there. And sometimes waiting for “something to happen” in a stock can really show you the true risk and give you the best entry. In this case, the “something to happen” was a not-so-nice (for early shorts) spray move to 55.75 after we printed a new low by 1c at at 54.96.

Some background: one time I heard my mentor Sammy mutter on one of the stocks he had traded “I should’ve got back in, the offer lifted but then came right back and held lower, that’s an even better short.” He was talking about a certain pattern where one should get back in if they got stopped out on a held offer play. So this playbook setup is about a particular squeeze-then-we-go-lower subset – the buy the new low program steps in and squeezes out the weak shorts and (and buyers at support get excited), extra liquidity and better prices immediately attract sellers to return to the market and bring it lower. This is what happened little over a minute later on MOS. This time, I got off the sidelines and hit the bids.

MOS reached my target of 53 and I covered on the bid at 52.88. I did not crush this trade by adding size (alas, this is the downside of my cautious approach to this stock) so I went back and reviewed good spots to add size responsibly, something that Bella mandates we do on our best trades.

For more information about adding new setups to your trading game, check out the Your Playbook Setups webinar we held in August.