Look at the chart above.  Say you shorted RIMM below 45 and got stopped out at 45.16, develop a reason for this loss and then continue reading.

Ok great to have you back with us.  Today during a teaching session Bad A$$ Mike shared a trade he made on the Open getting short RIMM below 45.  Steve whispered in his ear before the opening bell that 45 was a big level and it had downside potential.   Bad A$$ Mike had other ideas but he flipped to Steve’s right before the open.   He shorted below 45 and got stopped out.  Reviewing his work, the subsequent two points of down and frustrated he concluded,”I didn’t give RIMM enough room.”

I rose from the back of our training room and sauntered to the front.  ”That is not why this trade did not work,” I challenged.  Then I asked a series of questions to our traders to elicit the real reason why this trade did not work for Mike.   I will offer the cliff notes version.

1) Bad A$$ did not evaluate the importance of the 45 level for him.  I asked him on a scale of 1-10 how important the 45 level was for him and he had no answer.

2) Bad A$$ did not know that there was fresh potentially negative news with RIMM.  I asked him if there was fresh news in RIMM and he claimed there wasn’t.  @vontrading corrected him.

3) Bad A$$ did not consider how weak or strong the overall market was.

4) Most importantly Bad A$$ missed the best short which was below 44.80.  RIMM went above and below the level but then finally broke this pattern.  There is a subset to support plays.  One is shorting when a stock breaks its range below and above the level.   Know your subsets.

Bad A$$ did not have a feel for the Big Picture with this trade.   And he missed a subset of a support and resistance trade.  But this had very little to do with his stops and had everything to do with his process.   When you reflect on your trading get the real reasons for your losses correct.  This will help you make the necessary adjustments so you progress.  Finally the answer is not always wider stops.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading

Well its slow out there. This AM there were only a few stocks with fresh news. JAZZ was one of them. HPQ and the proposal of them potentially buying PAR was another. So I traded both. As I write I am also short BIDU. Let me share my thinking.

JAZZ
From Briefing.com:

Jazz Pharma shares trading 30% lower following Friday’s announcement that FDA voted 20-2 that the benefit/risk balance did not support the approval of JZP-6 (10.23 )

JAZZ gapped down from a close near 10 with an open around 7.55. 7.55 was tested aggressively but never dropped the bid on the Level II. 7.75 became another huge level but then JAZZ held above. As I write I am long. But 8 is a level on our long term charts and intraday as there has been significant volume done here. I do not know if JAZZ will trade higher or lower. But I am long till below 7.69, I will add more if JAZZ holds above 8, and I will short if JAZZ holds below 7.55. You could make a strong argument that I should be short from 8 waiting for JAZZ to crack 7.55 and find lower ground.

BIDU

80 has been a technical support level in BIDU. Today it found its way below 80 and showed some weakness on the tape. I started a small short position. There was a Tier 1 downgrade with BIDU but no news I would classify as significant. I have set a stop for 80.35-80.50ish. I will probably need SPY to trade below 107.40 for this trade to work intraday.

HPQ

This was my Play of the Day. One of our young traders was chirping short HPQ below 40, with a stop above 40.10. I offered and was taken starting a short position at 39.98. He was still chirping . I tried to add in front of the 39.80 intraday open resistance but was not filled. HPQ has reversed its intraday downtrend but with one lot I am holding since it is below 40. If I had gotten another lot at 39.77 I would have covered that 38.85 when it broke the intraday downtrend. 37.50 is a potential target for HPQ.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

About two hours ago I tweeted: $CREE near 60 huge R level
@biggercapital responded: would like to hear your what if scenarios RT @smbcapital: $CREE near 60 huge R level
And then came @readerfinance: would like to hear your what if scenarios RT @smbcapital: $CREE near 60 huge R level: would like to hear your what… http://bit.ly/dodYtu

At SMB we make trading decisions based upon three factors: intraday fundamentals, technicals, and reading the tape. 60 was a significant technical level for us. CREE could not close below 60 since the start of the year. And then it did. Important support that is broken becomes resistance. And so 60 became an important technical resistance level for us.

Now trading is not get short at a level and hope for the best. If it was this blog would not exist nor perhaps my firm. CREE was nearing 60, this technical level, but how do we trade it. What were our if/then statements for this opportunity?

Now let me say that I was not crazy about the fact that CREE had recently blown through another important technical resistance level of 57.75. Let me add that there was nothing on the tape that showed weakness as CREE found 60. Also, SPY above 109 makes for a strong market of late. Finally my thesis for shorting 57.75 was that CREE would turn from a growth stock to ordinary with potentially a much deeper decline imminent. Didn’t happen.

But this was an important technical level. So I shorted the level. For me this was a short one lot, cover half into a downmove to 35cish and then hold the rest. The cover is above 60.35-60.50 depending on your trading time frame. I would have added more and held longer if the tape confirmed the weakness at 60. We didn’t really get that. CREE failed from 60 but I didn’t see the battle, the brick wall at 60 of selling, and then the seller stepping lower that would have gotten me to add size. Also the market is still holding its head above the $SPY 109.

So I made the trade. If I make this trades a thousand times I will make a profit. That is how I judge my trades and not whether this one trade will work. I will make a profit in this CREE trade no matter what the result now as I covered some 31c, 26c, and then into the whole. I will hold the rest till I am stopped out most likely. As of yet I see no reason to sink my teeth into a huge short but that can change depending upon my observation of the market and stock.

I will discuss this trade via video with our SMB Trade of the Week on the NASDAQ app for the iPad and StockTwits TV and post the video soon.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

“I never think that there’s something I can’t do, whether it’s beating my opponent one on one or practicing another hour because something about my game is just not right.”
Earvin Magic Johnson

Hey Bella,
Hope you are enjoying this gorgeous weather! I know you are probably being bombarded with e-mails because of your new book (which I am very much looking forward to reading) but I had a question. I know a large majority of intraday traders make most of their $ trading on the open and close. I have compiled a spread sheet of my stats from the last few months and have noticed that I actually make the least amount of $ on the open & close and make the most during mid day. Is this unusual? I know some traders who put on huge size trying to catch opening drives. This is not my strength. It usually takes me 30mins – a few hours to identify the best stocks to be in. One of my strengths is being able to fade. Most of these fade trades come late morning/mid day for me, and I am particularly good at catching these counter trend moves. I have included my stats for time of day here . What would you recommend I do to improve my skills for trading the open and close? Thanks in advance Bella!

Bella Responds:

If I had a nickel for every time one of our new traders asked me this question…… This is an important question one not discussed to my memory on this blog. As way of background this question comes from an independent trader just killing it this year. A guy totally stepping up his game to become one of us.

We become better as traders by measuring our best set ups and trading them with more size more often. On the other hand as traders we need to push ourselves to constantly get better. And we should seek to become well rounded traders. What works one month may not work the next. It is entirely possible that a future month may be only opening drive plays of opportunity.

This reminds me of a Magic story. He was a world champion. All NBA. NBA MVP. Over the summer he worked on a new hook shot. Shot hundreds everyday. And then in one game against the C’s he buried one to propel the Lakers to yet another championship.

To be a great intraday trader opening drive plays should be mastered. Trade them with very little size. Work on controlling your risk. Go search this blog as I know we have discussed many excellent opening drive patterns. Develop a playbook of these set ups that make sense to you. Focus on what you do best but try and add this play slowly to your playbook as another trading weapon.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

Yesterday I wrote a blog post stressing the importance of making the real trades intraday.  One of our very experienced traders sent me this question:

i traded JWN today… why did you want to buy above 32 when it had just closed the gap and showed no signs of holding support?  to me, that’s a trade that flies in the face of fundamentally good technical trading.  maybe we’re seeing something differently but i dont see how that can be a model trade… it was actually a good short as it lost momentum after closing the gap and dropped support, right?

there was also a textbook pullback to vwap at 2:00 in that stock that i walked the new guys sitting around me through.  that is a good and easy trade.

i know different opinions make markets but i just thought the pay above a whole number wasn’t the trade to hold out as THE trade in jwn today.

Bella Responds

Great question by a serious market thinker. And thanks for making my Saturday AM a little more interesting as I consider this trade again.

First, I am not crazy about this trade because it steps outside of the stocks I have been most successful with this trading month. I will try and write more about these stocks tomorrow. In short, I have been trading the stocks with fresh news that were either really good or really bad. And JWN did not fit into that box.

32 was a longer term technical level that we identified in our AM meeting. Above this level was another check in our favor. We spotted a bullish flag intraday before this level. And then a very impressive move above both on the chart and the tape. The impressive move on the tape above 32 sparked my trading intuition that JWN might make a move to at least above 32.50. I formulated a trading plan to buy into the pullback below the whole.

Now one huge advantage of being an intraday trader is that we can use our trading skills to improve our price and thus our win rate per trade. My plan was to buy a pullback below 32 using my tape reading skills to start my position. JWN made a sharp and quick drop below 32, slowed every so slightly to my microscalping eye at 83c, where I placed a bid and got hit. I know some others on our desk got stopped out below 85c. But again I was buying the pullback below the whole and got the low print into the downmove. Hey it helps to have trading skills.

I did not love the downmove below the whole. I was not a fan of the upmove after the downmove. I took off most of my position into the next upmove to 13c and held the rest (I got stopped out of 1/3 at 31.79).

My playbook is more nuanced than most new traders. Most developing traders will just buy the pullback and hope for the best. I have many more if/then statements. So since I was not a fan of the downmove nor the upmove I took off most of my risk. Essentially I aborted a one lot pullback trade into a scalp fade trade leaving a 1/3 Trade2Hold position.

Now admittedly this can get very complicated. And there might never be a way for me to teach the trade that I made. Or readjust midtrade the trade I made. That takes trading intuition built through 12 years of screen time. But the underlining point to my previous blog is still important. I was making one pullback trade. I was not going to pay above 32 for a momentum trade, fade the move to 32.33, bid 32.11 after a sharp return to the whole and kick it out at 32.17, bid 32.01 and sell 32.11. We may have done this in some stocks in 08. And these were all trades that would have worked.

We make trading decisions based upon three factors: intraday fundamentals, reading the tape, and technicals. The weakness with my JWN trade for me, even though I turned into a profitable one because of my trading skills, was that the news was not bad enough or good enough for JWN to trend cleanly in one direction yesterday. This lowered the win rate for my JWN pullback trade such that it may not have been a trade that was best for me in this market environment.

In this market there are only real trades to be made, at excellent prices, waiting for real moves. We must focus on the real trades.

Finally I love you finding a VWAP trade that made sense to you with this same trade. If the SMB Training Blog is getting readers to think about these set ups and find such trades that make the most sense to them, then we are really making a significant contribution to the trading community. And that puts a huge smile on my face.

Mike Bellafiore
Author, One Good Trade (Wiley)

As intraday traders we can be guilty of overtrading.  Before the open and then intraday I ask myself: where is the real trade?

SPY today?  The real trade was to short near 109.  You could make up other trades but that was the real trade.

JWN?  The real trade was buying a pullback when it spiked above the 32 level after a bull flag.  That trade didn’t work but was one worth making.  There were no other real trades for me in JWN.

CSCO?  Shorting in front of the 21.60 level and waiting is the real trade.

LLY? Short below 35.50 was the real trade which again brought no coin.  But at least that was the real trade.

APOL? A couple of our guys caught the steep downmove from 40 to 38.50.  I will have to ask them what their real trade was here.

ADSK?  I played the bullish flag pattern after 10:15 AM.  Didn’t work but at least I was in the real trade for me.

BP?  Long above 38 for an intraday trend trade.

This is a market where you must be patient and wait for the real trades.  Were you today?

Mike Bellafiore

Author, One Good Trade (Wiley)

The market doesn’t care about your opinion.  If you have a problem with this, get over it.  Today during our After the Open Review one our Newbs got a harsh tongue lashing for thinking he knew better than the market.   This is a learning experience for us all.

Iron Mike Mike made a great trade in KSS on the Open.  KSS had earnings.  KSS could not trade below 46.42.  And then it did.  Iron Mike Mike got short for a Trade2Hold.  His target was 45.40ish.  Perfect!

“Where is your out for KSS?” asked the balding (ok let’s be honest… bald) veteran trader from the back of the training room.

“46.43,” responded Iron Mike Mike.

“But you shorted KSS because it started an intraday downtrend.  Don’t you need to cover if KSS breaks the intraday downtrend?”

“I had conviction that it would reach my target.”

Cue Coach Bella and an expletive deletive response, sure to be remembered by all in the roon.  As it should be.  Critical feedback is an important element to how all new traders learn.

I exploded: “The market doesn’t (expletive deletive) care where you think the stock is going.  You are trading a pattern.  It just so happens that your bias is being confirmed with the price action.  But when the intraday trend is broken it is a cover.”

@alphatrends mocked those who make predictions on the twitter stream last week.  Professional traders make good risk/reward trades and are not concerned with the outcome.   Nor are they under the delusion that they really know where a stock or the market is headed.  Those who will be pushing paper around at some dead end job in the near future are new traders who trade seeking to fulfill some narcissist need to be correct.    Or smarter than the market.  Or your trading neighbor.  Or a friend.  Get over yourself.   You have no idea where the market or stocks are really going in six months. All there is are favorable risk/reward trades to make with the outcome uncertain and controlling your risk paramount.

Mike Bellafiore

Author, One Good Trade (Wiley)

Traders Ask (FOSL):
After making money at this level, i added a small amount with entries at .51 and a .47 stop. I have never had problems with these stops before, but as the bid dropped, i got filled at the .09. How do i avoid this in the future? Was it just one buyer in the stock? Was this stock not liquid enough? I don’t want the answer to be limit stops because when i am wrong, i want out, i don’t want to fight the position.

Any advice you may have would be helpful, as I am a “home alone” trader without proper mentorship options and I have been struggling to find the right setups for myself. I have had some moderate success with Morning game plan, and appreciate the education i get from watching SMB on stocktwits regularly as well as the blog and “One Good Trade” book. Dealing with Roy has been a pleasure also.

Bella Responds:

I checked the charts from that move right around noon in FOSL (8/10). You can see the wick on the candle. There are three things to consider: 1) Manual stops, 2) you just got screwed, 3) you didn’t understand your risk.

I hear it on the desk. I couldn’t get out. And then the banging and cussing commences. I might be in the same stock and I am thinking that was not hard to exit. With manual stops and quick reactions, fast trading skills, you often can exit your position without these rips. And you sit flat wondering what the heck is everyone complaining about. You weren’t fast enough young fella. We use sweep keys on our desk, with price limits, to exit most of our positions. Speed matters.

Sometimes in trading you get screwed.

There are times when a stock has tremendous risk that it will drop out. You need to spot this. Generally you need to reduce your position. This occurs mostly on the open, after a steep upmove, near important technical levels, in stocks with light volume, or volatile stocks. Does FOSL have a history of offering these intraday wicks?

I am leaning towards you got screwed. One of our better traders, MoneyMaker from One Good Trade, was in the same move and lost a quick 1k. It happens. Consider the other points above, but my sense is there was nothing you could have done about this one.

Congratulations on joining the league of traders who have gotten screwed!

Mike Bellafiore
Author, One Good Trade (Wiley Trading)

Today RIG was the easiest of stocks to trade. 55 was the level. RIG dipped below there. And it trended in the most beautiful downtrend. Were you in this trade?

I wasn’t. This level was discussed during our AM meeting. Again I wasn’t in this trade. We have discussed this RIG level on our desk for days. Oil was weak. The oil sector traded in a downtrend intaday. Did I mention I wasn’t in the RIG trade?

Trading is a performance based game. With stuff like missing the RIG trade, I tend to get mad at myself or something first and then seek a solution. Perhaps it’s the Sicilian blood? Perhaps it is I cannot stand underperformance from myself? But I need to be in this trade. And I would imagine so do you. What is our solution?

So after the Open I will look at our charts in RIG. I will reprepare as if I hit the restart button on the trading day. I will check the news in RIG and oil. What is with this hurricane news? Did the dollar have an impact? Was it just this 55 was the level of all levels, a 10 out of 10? The overall weakness in the market?

And then I will replay being in this RIG trade. I will give the trade a name. I will consider where to add, how much, and where to lighten up. With as much detail as possible I will simulate making this trade. I will talk to some of our guys on the desk about this trade. I will find a trader who made this trade, snatch his video tape and watch it with our desk. I will journal about this A set up. I will make sure that I brand this set up in my head, with all its details, and visualize myself crushing it.

I caught a nice move in this CREE. A couple of the young guys are killing this MON. The day is young and there are more One Good Trades to catch. I will piece together a very profitable trading day. But I missed that trade in RIG. And the only way to get better is to replay it, practice making it, and brand it in my trading brain.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

After the open we took the new guys into the training room for them to highlight their One Good Trade(s). I move to the back of the room, open up the floor for them to present any best trades to the rest of the class, and let the new class argue amongst each other. What do they need me for

One thing that gets my ire and receives this coach’s grilling is a lack of a well-thought-out trade. Argggh. These newbs are well taught. So says @alphatrends on twitter: good luck to all the new traders at @smbcapital going live with real capital this morning, you have been taught well . They know what they are doing. They can make trades their own. And then they say some stuff that needs correction. 1) The detail from their trades is not sufficient. 2) The logic is flawed.

So the first presenter All Charts makes a technical play. We make our guys name their trades (I name them)- so let’s call this an All Charts Technical Breakdown Trade. Not a bad name there. Expect it is not really a Technical Breakdown Trade. All Charts is not detailed enough. It was a Combo Sector Technical Breakdown Trade. Big difference. The FCX level break was accompanied by a breakdown in copper. So now we have a trade that should be held longer and given more room. This matters.

Next was Iron Mike Mike who used an 8 week chart to start his short position in BP but then covered using the tape intraday. We have a flawed logic issue here. Actually Iron Mike Mike made a tape move to move trade which made sense he just didn’t know it.

Everyone’s Best Friend made a nice technical trade in TIE but then covered because, “I wanted to book my first trading profit.” Obviously this is understandable but not a reason to cover. Let it run young fella. And I say that even though you would have been stopped out for a loss if you had.

All trades are plays. You judge them on whether if you made them a thousand times you would be successful.
Give them names. Make sure the exact details of the set ups are clear. Make the trade your own.

Mike Bellafiore
Author, One Good Trade (Wiley Trading)