This is a post from our traders TO about a scalp trade he made on JBL from yesterday:
My trading desk neighbor SW and I were both trading JBL today, with 19 as the key level of interest. Without knowing it, I took the opposite direction of his trade at the Open for a quick momentum scalp. SW got long at 19.01 against the important 19 level. I got short into it. When I was reviewing my tape, he asked me “Why did you short into that held bid?”
My answer: “Because the seller could crush that bid and I could capture an explosive move to the downside. Plus the volume was done at .02, 19 hasn’t really proven itself”
Let me explain the trade: On the first ticks, we traded up to 19 where there was a held offer. The prints sped up and the volume came in. 19 lifted. We traded almost immediately to 19.14. There was no chance for someone looking for size to grab a lot of shares between after this offer lifted. Within 30 seconds, we traded higher to 19.30, while skipping a lot of prices. This is a move that tells us the stock is not very liquid, at least not yet. It also foreshadows that the stock could have other explosive moves, in either direction.
After this quick upmove, JBL returned to 19 within a minute. At first, I was looking at this as a potential buying opportunity. The short-term momentum was to the upside and we returned to a key breakout price. However, I am very weary of a stock returning to the same price too often, or failing to move away after a catalyst. I replaced my bid box with an offer box to hit the bids when the .03 seller lifted (this was supposed to be the catalyst to move away from 19) and came back. If this stock is truly strong, they should battle 19 and I’ll have time to see the buying and get out.
This is a not a trade that will make anyone’s trading career. It’s just an insignificant piker scalp trade. But I bring it up because it demonstrates a couple of important concepts:
- Developing an understanding of the present liquidity in a stock – Ask yourself “what’s underneath 19 if that bid drops?” You should have this thought implanted in your subconscious anytime you decide to get in front of held bids/offers on the Open, in order to have a better approximation of your risk-reward.
- Knowing your trading psychology – Which side is potentially trapped at that moment? Could this result in an explosive move as everyone rushes to the exit all at once at the same price?
You have to think about these things if you find yourself always getting in front of the order flow and frequently getting run over.
For more on reading the tape, check out the SMB Reading the Tape program.
9 Comments on “A Scalp Trade on JBL”
nice blog by PT. i have to comment though that i find the color scheme for his level II way beyond amusing!
I set it the same way as my old platform DAS Trader 😀
I set it the same way as my old platform DAS Trader 😀
I set it the same way as my old platform DAS Trader 😀
This was and excellent post to learn from. I like having the level two vid included. Very nice.
I’ve never quite agreed with this business about looking for the people that are going to be trapped, though. Of course when you are buying into support and support breaks, the bids will disappear and the bottom will fall out. That’s the way markets work. You don’t have to do a lot of thinking to figure that out.
The important part was trying to figure out from the level two whether that guy sitting at 03 was going to win or whether the guys lining up at 00-02 were going to win. And that is where the level two gives you an advantage and a jump over pure chart readers.
just my opin
I have to disagree on the trapped comment. Knowing the psychology of other traders/institutions in the stock is very important in determining where a stock might move next. If you have a lot of short term traders piling in at, and just above the 19 level, you have to think “what are they going to do if 19 drops?”
I agree that you could have made the trade just by watching the important price levels where volume was being done, but knowing the psychology of the other traders helped determine that an explosive down move could come if the level dropped.
That was a nice catch of that .03 seller, love trades like this ones!
That’s my boy Pete! Nice to see your doing well. You had to be quick on that one in order to get the fill. Good job.
This isn’t the best example of “trapped longs hitting out” (there are some technical reversal patterns that are much better examples), this is tape reading on the open ticks obviously so it’s more about price discovery. Here’s my thinking: traders want to pay the breakout above whole numbers so what do the price makers and institutions do? — they’ll go above and below the whole numbers to really shake it up.