Traders often want to trade bigger. Today SNAP offered an example to me of when and how.
I was short Shapchat ($SNAP) intraday and scrolling through the SNAP positions of our other traders on the desk. I felt like I was not big enough in my short. I started to think where I could add to my winning position.
First, one of our firm traders shorted into the close yesterday when SNAP dipped below its IPO price of 17 and held his position overnight. He was the biggest
winner on the desk as SNAP gapped down, and traded down until EOD. That swing overnight is one setup worth study for developing traders.
But for those of us who were not short overnight, SNAP still offered opportunity and an important lesson on adding size.
Why did I like the SNAP short and want to add size?
1) It was below its IPO price of 17. This tends to breed sellers and short sellers.
2) 17 had been support since its open and been tested multiple times previously and was below this level.
3) SNAP was below VWAP intraday, indicating weakness.
4) SNAP was below its opening range, another intraday signal of weakness.
5) Its most logical trading price was much lower until new support was found.
6) Bloomberg Twitter sentiment was 6×1 negative.
My sense was this was a Trade2Hold until SNAP shows us a new support level, much much lower.
Whether right or wrong, I liked the risk/reward on this trade.
I did wonder near 16 if those who were chasing the short were going to get squeezed up to 16.40. So it was hard
for me to press too hard around the 16 level for adds.
But there was a moment, where from a short term trading perspective, we were much more likely to be right on our shorts for a near
LOD close. It is right here in the chart below:
The buyers around 16 lost and the sellers were now in control with this move down to 15.60.
I chatted with a new trader who was also short about his short position and encouraged adding into a pop from the low of 15.60. He did add.
Now the sellers were in control. This temporary upmove to 15.80 gave us an opportunity to add. This is where I felt I was not big enough and started thinking and talking to others about how to increase size responsibly. I did.
There are trades that work and are easy. As traders, we want to make sure we are big enough, taking on enough risk in these opportunities. We talk about increasing size, but we must be specific about the opportunities best for us to do so.
And this was one of those opportunities.
*Mike Bellafiore is short SNAP