A technical analysis trade that requires RISK ON

There are certain trades that require RISK ON. They do not come often. You must be ready. They can make your trading month. In this video, a trader from the desk shares an A+ technical analysis trade that requires maximum risk. Let’s get to work on sharing these important trading lessons so you can grow your trading account.

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there are certain trades that require
risk on
they don’t come often you must be ready
they can
make your trading month hi i’m mike
bellafiore co-founder of smb capital and
we’re a proprietary trading firm
located in midtown manhattan and i’m
also the author of the trading class of
going good trade
and the playbook in this video a trader
from our desk
shares an a plus technical analysis
trade
that requires maximum risk for this
trader
let’s get to work on sharing these
important trading lessons
so you can grow your trading account
so i wanted to go over a high time frame
technical breakout trade i took in neo
it’s a setup where if all the variables
are in your favor which
in this scenario they were it’s really
an a plus setup that can make your month
so for this trade it’s fairly simple we
want a strong stock that’s consolidating
for
multiple weeks at high time frame
resistance and is now gapping up to that
high time frame resistance or above
ideally with the news catalyst fueling
the breakout you know if the market is
strong and simply gapping up
and this we saw neo gapping up with it
that would be
worth putting on some size but having
the individual news catalyst is really
going to push the state plus
and for this trade looking to build into
it as an intraday swing trade
you know and it’s really important to
acknowledge that i think it’s not some
opening drive trade where i want to be
you know out the door by 9 45 i really
have the intention of holding on for
uh for multiple points of upside
and so when i’m seeing this kind of
consolidation breakout trade here
on a high time frame there’s really
three ways i’m going to be looking to
get involved
primarily one just being an opening
drive long which we’ve talked about
plenty of times but in the pre-market
we see a well-defined range and see the
resistance of that range get taken out
on the open and hitting it along
seeing if the stock just immediately
starts ripping on the open
another trade would be the dip and rip
which for me means
a stock that is gapping up at least five
percent on changing fundamentals
uh and we see both profit taking and
short selling on the open that causes it
to dip
stalling and then turn around and really
rip to the upside and start trending
and then if i’m not able to get involved
in either of those ways
then really i’m just going to be looking
to see neo trading above all-time highs
above pre-market highs and starting to
consolidate
and looking to buy poland’s to in order
to build into an intraday
swing so for the bigger picture
neo has been a close watch for myself
and a bunch of the traders at the firm
for several weeks
and even still today so it broke to
all-time highs and then for
several weeks we saw neo consolidating
between 21 and 22
so given that i was thinking that with a
news catalyst
and a break above 22 neo had a really
good chance of putting in
an explosive move to the upside and just
wanted to note that it’s important to
acknowledge the
the tightness of the consolidation zone
and the duration of the consolidation
zone
is exactly the reason we’re going to get
that explosivity because
you know there’s that adage out of
contraction comes expansion
and that’s a mantra that drives a lot of
my trading
and as for the overall ev sector
obviously earlier in the year we had a
really aggressive parabolic run up
and so now after a long rest period
where things have cooled off for a bit
we’ve seen neo and tesla really primed
for big technical breakout trades on
their dailies and as for the overall
market
spy and queues were selling off slightly
but on well our ball
and given the market at this point was
incredibly strong there was
just this is kind of an anticipated
movement kind of a necessary relief day
so the lack of volume driving that
downside in the markets
implies at least to me that there’s a
lack of conviction from market
participants and we’re not likely to see
sustained aggressive selling to the
downside
so for this trade i’m thinking that the
ev sector is
likely to trade independently from the
rest of the high betas
so as long as spying cues aren’t selling
off with high volume
our ball of two or greater then i still
have conviction in this breakout idea i
just really need the overall market to
stay out of the way
yeah super important point this sector
is hot the sector is in play
we expect this sector to trade
independently stronger than the overall
market
so i’m just curious uh
updating from today what are the ev
names that you look at
as as us as a sector sure so we’ve kind
of seen
at least in these recent moves that
tesla has moved somewhat independently
from the rest of the ev names
but i have been watching neo li and xpev
as a basket and those three really trade
and tandem extremely well
so just watching those three at all
times and i was for the day of this
trade
okay very good and so if you see the
basket
the sector strong that’s super important
for your individual trade absolutely and
i’m going to be watching those names
throughout the day
even though i’m thinking i want to use
neo as my vehicle good
good basket to be watching today so as
for a catalyst in pre-market neo is
gapping up above 22.
graham i am a little taken aback about
this being 21 22.
i know i know i was reviewing this the
other day it blows my mind
um but on the in the morning we saw neo
gapping above 22
on news that jpm upgraded the stock to
overweight and gave it a price target of
40
which was nearly triple their prior
assessment which is pretty ridiculous
and we’ve been in an environment
especially at this point in october
where bank upgrades were really acting
as strong catalysts for intraday
continuation
so once i saw this news paired with the
gapping above the inflection level i
felt decent that there was a good chance
that we could uh
really push and continue to trend above
22.
and then on top of this we saw that li
and xbev
those names i was just talking about
within the basket both received by
ratings themselves on the morning of
this trade
and tesla was gapping up because
a elon musk tweeted something about
electric buses and the potential there
but quickly deleted it but people still
saw it be
ford was announced they announced that
they were delaying the production of
their
ev model that they had been touting and
see
ron baron came out claiming that tesla
would eventually become a two trillion
dollar company
so what we’re seeing is not just
bullishness and neo but the overall eb
sector really primed to move on the
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in my eyes if this breakout trade’s ever
going to work this is the morning for it
i basically have every variable
whether it’s fundamental technical
whatever you may want it’s all setting
up in my favor so this is really
setting to be a plus if it follows
through yeah and so
i just want to ask you a question and
you’re developing at this point and
the most important thing is for you to
be consistent when you start and so
i’ll just give you this is the thought
to be thinking about
when you get a little bit more mature
and i had this conversation with swine
today
trading neo and some of the other eevee
names
which is when you get a little bit when
you get a little bit more mature when
you get a little bit more experience
after you’re consistent
and you know what your a plus trades are
you’re going to
have to ask the risk manager
for more risk when you see an a plus a
plus trade
there there are going to be trades where
where you’re gonna have to put on more
risk
and so today was one of those
opportunities in the ev sector
where the top traders were asking for
more risk
and you have to ask for more risk
so the whole point of going through
these exercises
is yeah you want to get consistent and
after you’re consistent you want to know
what your best trades are
and then what we’re going to push you to
do and you’re going to have to do
graham and everybody listening you’re
going to have to do this
you’re going to have to ask for more
risk for your a plus a plus trades
absolutely and you’re gonna have to put
it and you’re gonna have to put it on
yeah and this is a day or a trade in
which you know i’ll review it later but
i don’t even think i took advantage of
the risk that i do have currently so
definitely room for improvement there
but we’ll get to that as for the
intraday fundamentals
just you know obvious stats about the
about the company that we’re seeing here
most important ones just being arvel
over five very very much in play
and then atr 1.15 which will be you know
some sort of guide for me
as i try and suss out exactly how much i
can squeeze out of this trade
yeah so i felt obligated to share this
kind of ugly execution chart
um so on the day of this trade separate
from the overall playbook
on the 8th of october neo had been
consolidating within this 21 to 22 band
for
maybe a week and a half and on the
morning of the trade the overall market
was gapping up
and bringing neo with it opening up
above 22 but there was no individual
catalyst behind it
still worth some risk but not as much
was was applied here in this trade
and what you see here is that my my
entries and my
trades that i took here just make no
real sense well they make sense but
they’re sloppy
so first of all we see here that i took
multiple opening drive attempts and not
really
taking them on properly chasing price up
pretty aggressively
we push out of the opening range and i’m
trying to hit it along here and in fact
we stuff right back into the range where
i need to be hitting out for break even
once we get this stuff back into the
morning range
and instead i’m trying to dip by and add
a little bit to my position
which quickly uh forces me to stop out
as we re-test low day
and then furthermore we go down and i’m
thinking okay maybe this is going to be
a different rip setup where
i have to wait for this to bottom out
and really see if i can get some lungs
here with
intelligent risk but that’s not really
what i end up doing and i end up taking
multiple shots at this
and it’s it’s very important to
acknowledge for this different rip
a portion of it i’m gonna be looking to
play against some sort of wick low
but then there’s another portion given
that i think this is an a plus
potential breakout i want to make sure
that i’m still in the position even if
there’s some chop
because the name is really crowded so i
acknowledge a 2160
important resistance level from the
previous day that we’re now above and i
want to put a portion of my position
about 50 percent of these dip and rep
shares
against this 2160 and again that’s not
really what i do here instead i’m trying
to
find the recent wick lows and keep
hitting in anticipating that this has to
really break out
and eventually we do get back above 22
but not after
not before i had taken you know a decent
bit of drawdown here
and oversized into these trades so this
was a very frustrating loss and this
breakout didn’t end up working
but it ended up being a really nice
learning opportunity for me for when
this trade actually did set up
so if we check out it daily now this is
the range we were talking about here
we saw neo really strong throughout this
entire pandemic
and pushed to these all-time highs and
was consolidating tightly here
and this is what we were watching again
using the term stalking we were really
stocking this for for multiple days
multiple weeks
and on the day of this trade gapping up
out clearly outside of this range and
this lets me know that you know it’s
game time
just a little bit more clearly on the
hourly this is the day of that
failed breakout trade that i just
acknowledged
but this is a much more significant gap
and there’s obviously news driving it as
well
and then as we head into pre-market you
know seeing
how far we are outside of this 22 range
and knowing that the context is
different now my job is just to
watch this throughout pre-market figure
out exactly what
you know some levels that i can think to
play off of some levels that have done a
decent bit of volume that i think might
act as inflections because again coming
into
the morning i’m trying to game plan how
am i going to trade this if it’s an
opening drive how am i going to trade it
for
a reversal you know thinking that
similar to the previous different rip
setup where i had it against i think
2160 was the level i acknowledged
i would have it against this 23-15 level
here keeping some of my shares on
against this wider stock thinking that
you know this is an a plus trade i want
to make sure that i leave some with a
wide stop so i can really capture a big
trend day
so trade management this isn’t really
important to read the exact trades
but i just wanted to show that on the
morning of this trade recognizing
the opportunity it was likely available
i wanted to write out exactly
those three methods i talked about you
know the opening drive the dip and rip
and the consolidation above pre-market
highs
exactly what prices i wanted to be
basing it against and more importantly
how many shares i wanted to be taking
and what percentage of my daily stop i
wanted to be risking
uh for each of these different entry
strategies
just also kind of having you know that
memory of the previous
uh the previous failed breakout trade in
which i
didn’t use proper risk management didn’t
go through the detail to actually figure
out how many shares i wanted to be
taking with how much percentage of my
daily stop
so coming into the open you know nothing
to do but really sit on my hands now but
now i am seeing this 2408 level as a
a clear level that’s been tested three
times now so that’s giving me some kind
of basis that i can use for
an opening drive trade thinking if we
can take out that level maybe we can
really push and carry through
i’ll scoot forward just a little bit
so i’m pretty happy with how this is
just stalling here it would be
harder for me to get in for an opening
drive if we were breaking past this 2408
because that would mess up the morning
range so i’m happy with this staying
tight and leaving the 2408 intact
so now we’re open
and again just sticking to this 2408 now
we see that size and we break through so
i immediately hit in and i think i can
put on big size here
given that my risk is going to be so
tight push above to 24
20. what are you going to risk against
there
graham uh a fallback under 24
or if we just start going back into that
morning range and consolidating bullet
2408
and that’s kind of the mistake i made
first the first mistake i made
on the previous breakout attempt was
that i didn’t cut my shares once we fell
back into this morning range
and so we do here i learned from that
lesson and i begin piecing out of this
position
so i’m out of everything there
good and that’s a good general rule
which is when we buy a breakout
we don’t want it to come back into that
range
that we were watching before it’s going
to come back into that range trade
decision there
exactly so really help reduce risk
to where i’m actually basically taking
those shares off for breakeven which i’m
really happy with because i put myself
in a great opportunity
sure if it’s going to break out if you
buy a breakout trade it should break out
and so now i’m just watching these
levels from pre-markets 2370 to 2360-ish
apologize for the watermark here but
we’ll be watching the tape anyway
and not looking to hit in too early
trying to
see what levels are holding consistently
so i actually hit in some here and i
know that at the time i’m risking
a half against this 2362 and the rest
below this
wick low i believe
but again for these different rips
especially on the the intraday swing
ones where i think it’ll be a big
technical breakout
i am looking to hold positions against a
wider stop so that i can keep myself
involved in case it moves without me
still just sitting in this here right
now
not in love with my average price at the
time
but we do seem to be holding that
23-75-ish level fairly well for the time
being
are you thinking about improving your
price yeah and i believe i do that here
actually yeah i ditch
half of those shares for breakeven
because you know i’m hoping that i can
improve my price although
i am a bit worrisome here once we see
this
yeah actually i do remember this now and
we pushed back up above that 2408 and
i’m starting to get a little bit
frustrated
but recognizing that you know the trade
is still fine and now i can look for if
we pull back
uh and really start to hold higher hold
above maybe 23.90
then i should be looking to add shares
back on yeah and just
you know one of the things you can do
right there is you can buy in front of
75 cents you can buy
in front of 23.75 and just scalp a
little bit
tight stop with the ads
just to get yourself a better price so
you buy 76 cents you kick it out in
front of 24
really really tight stop it just gives
yourself a better price
yeah and i think i was a big gun shy at
this point because i was very wary of
doing the same thing where i take too
many shots
but the size wouldn’t have to be as big
as it was in you know the time when i
i went too aggressively
and given the fact that i don’t believe
i take any shares off here
because of the fact that this isn’t the
full size i would like to get up to in
this trade
and as i said this isn’t really an
opening drive trade
and i think i can scoot forward a little
bit so we get above the opening range
are you feeling a lot better about the
trade see we get above
you know we get above that 23
[Music]
20 level 23 20. you know we’re above the
opening range
you’re in the driver’s seat there no
absolutely so my mindset at this point
especially we
get this pullback and i’m very happy for
it because given this action that we’ve
seen this is one of the main ways that i
would like to get involved for a
breakout trade so this really is setting
up nicely
i’m looking for a pullback to get myself
back up to a bigger size
i think i misspoke right it’s 12 24 you
know above that opening right 24 25 yeah
my mistake but once you get above very
i’m i’m thinking you want to get longer
do you want to get longer yes and i
believe i do here in the next
one to two minutes yeah and i think you
have to get longer given the setup
yeah and so here’s probably where i
should just be hitting in just based on
price
and i do right here 2408 and i get
filled at any second now
uh but now i can pretty comfortably put
everything against 23.75
and given that i’m risking like 10
of my daily stop at this point and
that’s really just not enough
can you go back can you stop here can
you just flick back and go
go show us the daily chart again we have
this very large breakout here
so contextually i have to be aware that
you know i shouldn’t be fighting for
15 cents 50 cents
yeah we’re above that range right
we’re holding above that range
so we really got to be thinking risk on
here
this is risk on right here our mindset
flips
how do we put more risk on and control
our risk overall
i’m not nervous here i’m not worried
here i my job’s put on risk here
if it doesn’t work out i’m fine with
that yeah and this is this is what
carlton likes to refer to as planned
losses like if this doesn’t work out and
i lose money on this trade so be it but
this is a really fantastic opportunity
and in the long run i’m like printing
money by getting along here
but when i saw the steepness of this
pullback i was just a little bit wary to
get in more
although you know from a risk reward
perspective that is the spot to be
hitting it more
with a pretty obvious risk level
there’s not much ambiguity to the trade
at this stage
um and i believe that’s the most
important part of the tape we end up
holding up
more and more in this range really can’t
spend time below like 24 10 even
i’m so at this point i could also be
adding shares on at this point pretty
reasonably against
this wick low here at like 23 93-ish
so at that point i’m risking what like
25
28 cents for a trade that could easily
give me a point or more
and now we start to get that volume
coming in and the push through
yeah so we end up pushing through and i
think that’s about it for
the tape aspect on the way up
we start pushing and i’m just slowly
scaling out of small pieces
so so i mean where do you think this can
go to
so you did a really good job game
planning
this idea you do a really good job of
understanding that hey if it gets above
this technical
resistance area it’s going to go find
higher prices
but in your prep you want to imagine you
want to visualize or
you want to get in your head where can
this go to
if it gets above these prices
we actually know where it went to but
you know what what’s the upside here and
if you can get that in your head
and you do that before you’re actually
in the trade
that will help you you stay in it like
yesterday just as an example we were
playing around with neo
and when we got above 45 which was the
big technical level
we were wondering hey could it go to 50.
and then
uh when it got above 49 uh 35-ish
we wondered hey could it go to 55. we
were in in our head
didn’t quite get there today but but
close but in our head where
we were imagining we were visualizing
where could it go to when you’re above a
technical level when you’re in a stock
that’s hot when you’re in a stock that’s
hot in the hot sector
and it’s holding up and it’s above the
opening range
this is at that point i said this before
but at that point
the risk is not putting on enough risk
that’s the risk not that you shouldn’t
put stops in you should
but the risk is not putting on the risk
and not that you shouldn’t take sales
not that you shouldn’t take profits into
spikes to the upside
you should but the mindset is
to put risk on with stops and to take
and to take some profits and into rips
but but you you want to then be fearful
that you don’t have enough
risk on it’s just your mindset
completely flips we do all these trades
we’re like i wonder if i’m going to lose
i wonder if
i risk too much it flips now in this
particular
trade it’s i’m spearful that i don’t
have enough risk
on i have to put risk on this is my job
now
if i want to be a consistent trader now
is the time to
to be putting that on but i think in
your prep you should be thinking about
where could it go to
yeah and i should especially have that
in my mind because this is a trade
that like i precisely had been game
planning in my mind for
literally like a week and a half waiting
and anticipating this exact move
you know and sometimes in something
that’s really hot you can just say
i’m just gonna let it tell me where it
can go to let me see where it can run to
maybe i’ll use
a moving average to help me
get out of a winner but as long as it’s
above a moving average
i’m going to stay in it you know maybe
it’s
got a break a significant consolidation
period
maybe it’s got a break below view op
as another idea you know maybe it’s got
to get so steep and i define what that
means to be so steep
but but i i flip my mindset too
i got to make sure i have enough risk on
and i flip
the the pressure of getting out at the
right price to
now i’m going to let it show me where i
should get out
i’m in the driver’s seat i’m putting
risk on and i’m letting it show me
you know or i’m going to let my system
take me out of the trade does that make
sense
yes definitely you know we only have
you know one or two really big trades a
week
and we want to make sure that we we
capture those opportunities
you’re not always going to catch them
but you have to do the right thing
yeah and and coming into this trade you
know given the technical setup and the
context the context behind it
my idea really is i should be looking to
capture at least two atr from a move
like this
um and now we’re you know just over an
atr from the lows and i’m down to 50
of my position so i do think that taking
some profits on the way up makes some
sense
but that much is is just overboard
especially given that i’m not full size
anyway i’m not a plus size
but i figured i showed the executions
here and this is the
other side of the trade that needs that
needs major improvement
i know we exchanged some ideas with with
your
your work daily and i i noticed
sometimes when you get frustrated
in your work to me
i’d be super frustrated if i didn’t have
enough risk on an opportunity like this
to me i know you’re really hard on
yourself overly hard on yourself at
times when you don’t need to be
this is the time to be really hard on
yourself because this is what’s going to
really
move the needle absolutely and like i
said at the beginning of this
this truly is like a month-making
opportunity and i’m sure there are
people at the firm that did just that
here obviously you need an improvement
with sizing and then
taking some sales on the way up trying
to keep those pieces small
but once it seemed like things were
getting a little bit too hot taking off
more and more of my position to where i
think i’m down to
somewhere like a third of my position by
the time we get to 2560
and then sitting on my hands wanting to
take the rest as the intraday swing
but the big issue with that is the whole
point of allowing for this big
consolidation period
at least a big point of it is that after
we get a pullback
of you know a half an atr and we cleanly
hold v-wap like this
you know i should be looking now to
rebuild this position the play isn’t
over we’re now making higher lows again
i need to be looking to put risk back on
and my average price is still going to
be very very strong
so this was in my opinion another
perhaps the biggest mistake in the trade
one of at least um and then as we start
pushing to new highs throughout the day
i’m slowly pushing out as we get
a little bit capitulatory so things to
improve
yeah so all my initial different group
entries if you remember i cut half of
the shares essentially for
breakeven because i didn’t like my price
at well i said what was it like 24.89
um so when i do that
now on those different shares i have
less than 10 of my daily stop risks
there which just isn’t enough it’s just
not nearly enough
um and then again the biggest area in my
opinion for improvement aside from
sizing
how much should you arrest in this trade
how much should you risk going forward
how much should i risk yeah of your
daily stop i think at least 30
and i think i sometimes get a bit too
conservative in what i can put on for a
plus like even 30
might not be big enough probably like
50. yeah and i’ll just tell you swang
and i were talking about a really big
opportunity today
in the ev sector and he asked for and
put on double his risk
he put on double as his normal intraday
risk so that’s what
we want to get to so we want to be
consistent here
with putting on risk and then that’s
where we’re going to get to
absolutely and and like just to kind of
highlight how big these opportunities
are is like
this was either my biggest or my second
biggest trade of october and i was
risking less than 10 of my daily stop
so this is where i really have to be
pressing it yeah just getting back to it
a little bit
i need to be looking to rebuild my
position after that initial morning move
i came into it with the mindset that
it’s not just going to be a 30 minute
trade
this is a multi-hour setup and one that
going forward when i do get that longer
timeframe account
this is the kind of trade that i want to
be taking for a multi-day
or you know even multi-week swing trade
just given the technical and fundamental
setup that we’re seeing
and just just a side note because this
is something i’ve had issues with before
given the steepness that we saw in that
morning up move you do have to be
patient in how you add back into your
positions you don’t want to just be
buying every dip because then you
ruining your average price bringing it
up higher and then the first time we do
get a real significant pullback
uh you’re under water so instead i’m
looking for those significant pullbacks
at least a quarter of an atr if not more
and putting in those higher lows before
adding shares back on hey let me make
this point let me make this point about
sizing in this way this would be a fun
way to do it
so we had a big opportunity in the ev
sector today
this time was on the short side
obviously at higher prices which we were
chuckling about at the beginning
a lot of traders on the desk you know
put up
ten thousand twenty thousand dollars in
this opportunity today
in the ev names ally uh
neo uh and so
and great so so great that they did that
and we’re spending a lot of time getting
them to think about making a little bit
more
money in these particular stocks how can
they do it
how could they have done it within their
system i actually put up a tweet
to this effect today saying all right
you made a lot of money in this
particular name
how do you make 10 more but but i ask
you a question and maybe you know the
answer to this so we had a lot of guys
who put up 10 and 20 in in in this
opportunity today right what do you
think the biggest traders at the desk
mate
what do i think they made yeah so a lot
of guys put up 10 and 20.
what are the biggest traders at the firm
and i think this puts it in context
of how important it is to get big in
trades like this because you do a great
job graham of identifying a terrific a
plus opportunity a terrific job
but i want to just highlight
the importance that this makes
to your p l by putting on enough risk
what’s the difference
uh i mean i i would guess that the they
were making somewhere in the vicinity of
mid-six figures that would be my guess
yes
yes the the best traders you know put up
over half a million dollars
you got and you guys are watching that
opportunity too right and it was a
pretty good opportunity
the best traders put up over half a
million dollars 100 percent
several of them and so it it is the
difference between making 10 and 20
or half a million dollars in a trade
more and and and so that’s why we talk
about this stuff now for you the numbers
are going to be a little bit lower and
that’s fine but it’s still the same
process and you did a lot right
in this trade did a great job of seeing
it great job of setting it up
great job of thinking through it great
job of understanding where you can put
risk on
but you will neck but and look it takes
time
next time we want you to put on 10 more
though okay
absolutely actually maybe more next time
yeah i think i think more
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