In this video, learn how to improve your trading entries. Mike provides critical feedback to a junior trader to help him improve his trading entries in ADT, after this company struck a game-changing deal with Google. Let’s get to work on sharing these important trading lessons so you can grow your trading account.
View Video Transcriptin this video learn how to improve your
trading entries
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
classic one good trade and the playbook
in this video i provide critical
feedback
to a junior trader to help him improve
his trading entries in adt
after this company struck a
game-changing deal with google
let’s get to work on sharing these
important trading lessons
so you can grow your trading account
[Music]
this trade is from
[Music]
monday of uh this week so yeah this
trade was on monday recently
um it was an opening drive play that was
a very
exaggerated opening drive play leading
to multiple
upward and downward halts so we’ll just
get into this
and why this was really in play
so the trade criteria for these opening
drives i’ve
kind of gone through some of this before
but the elevated arvol
is one of the most attractive um
variables and also
more pre-market volume being done is
another indicator
hey matt do you think this is a an
opening drive play or do you think this
is a breaking news trade
i feel like it’s an opening drive like
within a breaking news play almost
because
we see like a consolidation off the open
and then
and then a breakout but the news is also
very positive and
but i think it’s more of an opening
drive because the initial breakout
that happens pre-market when this news
comes out it ran
all the way up from 13 to 20 without
pulling back
so i think that was really maybe the the
breaking news trade and then this was
more of
a opening drive trade using the
variables and levels given to me
pre-market from that initial
breaking news uh breakout
so what time does that news come out so
that news came out around
i believe it was like seven a.m i guess
i’m skipping ahead
or six six a.m
um yeah and then you can see it runs up
in the pre-market and then these are the
technical levels we end up trading off
of
so i think it’s it’s definitely a mix of
both
um the news catalyst is definitely why i
was initially looking at it
and um it could it could probably be
labeled as that as well
um so strong after hours and pre-market
gap
um look i mean one of the so a breaking
news trade
to me is you’re sitting at your desk
and breaking news hits the tape
and you’re quick to react a
or you wait for if it’s positive i guess
some news can be negative although these
days it seems like all the news is
positive
for a stock even when it’s negative um
so when i think of a breaking news trade
i think of
news hitting the tape and then you being
quick
to react as to how you think the
market’s going to react
and opening drive play to me is a
different trade which is this is how the
order flow is going to
come into the marketplace right on the
open
this is my strategy for the the early
minutes of trading that’s what we call
the opening drive
so and we trade them
we have those are different plays for
our playbook
and we’re going to have different
variables for each
and one you might be good at while the
other you might not be good at
and so when you measure trades at the
end of the month you want to know that
so that’s why i asked that question
right yeah this going off those
variables as well then this is
definitely
an opening drive play as that breaking
news was much earlier in the morning
we’ll go with that then opening drive
um so we want to see for the nature of
an opening drive we wanted
to be fast once the direction is kind of
picked with volume and speed
and we for an opening drive long we
would want to see like a lack of selling
pressure
on the open or some held bid areas
something along that
line because this is an opening drive
long
for the major trade in here and then
your risk is often going to be
pre-market levels that are discussed we
have an important level at 1370
pre-market
when watching this an hour before the
open so i know if this 1370
isn’t being bid up that’s a potential
sign of weakness so that’s kind of an
example of
how those pre-market levels can help you
make quick decisions off the open of
kind of
who’s stepping into control
so this isn’t a trade that was very
correlated with the market or anything
of that nature but it’s still good
give an overview this company adt
is in the electronics and security
business and the news is with google so
maybe a little bit of tech relation but
we just saw we had relative strength on
the morning which is
never um which is always nice to have on
your side when in a long breakout trade
so this is just a small check in my
favor
we can see vix a little bit under 30 so
some a little more volatility maybe than
some like 15 dollar vix environments
tick you can see stays pretty positive
for the day
until selloff at the end but we’re just
really focusing on this morning on the
opening drive so
just this first half hour to an hour
so the real catalyst for why i was
looking at this pre-market
and why i thought this was going to be a
good trading vehicle was because
google released news they were going to
partner with adt
to create smart home security offerings
essentially
they want to give you the ability on
your google smart
phones and hardware to control your adt
home security system
check the cameras uh change settings
all sorts of things like that whether
you want to record the cameras
and when you’re away from home if you
want to turn it on and off all sorts of
just
convenient improvements to home security
processes
so adt is going to receive 450 million
dollars for the deal and google will
take a 7
stake in adt so this is major news
because this is a
popular industry in tech with the
hardwares and services
google is one of the biggest players in
that industry so people are gonna be
interested if google’s interested in it
and
if google’s really committing this much
money towards a deal and taking a
percentage
in the company then there’s real
potential for fundamental changes
in the company going forward when
there’s such a large company like google
that can now help back it
so there’s going to be a lot of eyes on
this both from a
from firms perspectives trying to
re-allocate their funds based on
the new valuations of the company
there’ll be day traders like us who are
looking at it for the volatility
and the uh outsized movements and then
there’s even going to be retail traders
who are in on this
on robin hood and things like that
because this this is like one of the
biggest movers on the entire day
and it had all all eyes on it leading to
a lot of outsized risk return risk
reward potential
in uh in my opinion and
after this catalyst happened at the
market open we saw there was one
thousand times our vault but this is
also
prevalent in the pre-market i saw how
much volume was done and it was
thousands of times the usual amount so
really looking at volumes an important
indicator usually it has an atr of like
0.35 coming into this day so that’s not
really
relevant when something is this up on
the day when it’s up
almost 10 points um institutional
ownership is important to mention here
because like i said there could be
really
big funds that need to step in and
reallocate their position throughout the
day
whether they’re accumulating or whether
they’re needing to sell
and sometimes they just have so many
shares that they just have to get rid of
them or have to buy and
that can create some a lot of short
coverings for some squeezes at times
this is the long-term technicals for adt
leading into this day
um so the day of the trade was this
initial gap up to
14 it looks like was like the middle of
the range
with a high at 1720 in the pre-market or
all the way up to 20
sorry and really this is all-time highs
for the stock that’s what we’re
evaluating here so there’s no
major overhead technical levels that
could
create um a lot of offers
really easily on uh an all-time highs
breakout these levels would have to
take longer to be established so that
helps um
increase to a long bias while seeing a
long breakout at all-time highs
so the pre-market technicals is a really
important area for an opening drive
trade to acquire
information to make quick trading
decisions on the open
so we can see this 1370 level is
probably the most significant trading
level for me
because the initial breakout on the news
becomes a major resistance we wedge and
we get our
our even larger breakout but then as we
finally pull back in the morning
for this half hour before the open we
still hold this level with buyers making
me think okay
if people need to start acquiring this
for maybe funds or changing
values or any types of ideas
in that range they’re going to be
probably risking off this level because
there’s been buyers and sellers and lots
of volume clearly
even just in the pre-market we can see
these volume spikes
in this consolidation from 1370 to
14 15 and then also just from watching
pre-market trading and levels you kind
of saw the 17 psychological level came
in and those are often formed at those
whole dollars when they are at all-time
highs
it’s kind of natural for that to happen
kind of like how this 15 became
a minor area before this breakdown and
hold under
so really i’m thinking if there’s a lot
of volume
and buying off the open and holding
above 1370
then we have a real potential for a
breakout to the upside
but i’m also not opposed to a short bias
on the open i’m just taking kind of what
the market’s giving me
and if we’re under 1370 holding under it
and then volume really comes into that
downside there’s still plenty of
uh room for trades the downside on this
as we’ve seen all day faders
happen as well where we get these gap up
pre-markets
pre-market and that’s like the real bulk
of the move so
just trying to keep an open mind to
either sides and
not get too stubborn because you really
don’t want to fight the trend on these
lower flow stocks i can gap up on
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tape is what gives me the most
information on a trade like this off the
open
everything’s happening very quickly so
i’ll pause it throughout
and kind of break down what i’m thinking
about
through each moment of the trade so i’m
going to start it right at the market
open we can see
we’re holding a little bit above this
1370 area
like the 1380s so i’m just going to be
watching how that level reacts off the
open
so the market opens i mean see you’re
kind of under this 1370.
no real buying volume coming in just
kind of holding under there but
nothing too significant yet
just thinking maybe this is a little bit
weak but nothing
sorry
so we’re gonna get our first kind of
breakdown here
under 13.70 and i’m going to see if
buyers are stepping in or if we get a
real wash so you can see
so you get further down from that 1370
and now those 1350 bids are the next
area i’m looking at i’m thinking okay
there are a lot of people now interested
buying at 13.50
so i’ll take i’ll watch how this level
reacts if it
strongly holds then there’s definitely
buyers stepping in
and they give out here but if we come
back to this level i’m still going to be
wary that there are buyers there and
they could still come back
so before i did have the long trade in
this i you see i had a short scalp but
that’s not important that’s just
um it was getting a feel for just the
tape and the trade and seeing that it
really can’t break down we’re seeing
this 1350 is rebid
and it quickly rebid a lot of offers at
13.75
so if those get taken out we’re back
over
i’ll 13.70 give it a tiny bit so 13.50
is still holding so
i’m not liking a short idea as much
anymore i’m thinking
there’s some buyers really coming in we
saw the large bids there couldn’t break
down under
so i take my short off for break even it
was like
literally a three dollar loss but now
i’m thinking okay where can i get long
in this
if it gets over 1370 and starts holding
and looks like it can really break out
so then i get along there at 13.93 when
we’re pulling up into 14
it was really quick because i go so you
can see here so
1380s and we start picking up speed the
1389
bid got eaten that was highlighted and
when that got taken out
that got me in and then we’re through
fourteen dollars
and i sell a fifth of my risk over 14
there
at 1409 because i know from watching it
pre-market
when these 1370s were holding 14
was kind of the main resistance so on
these opening drives they need to work
quickly in your favor
so you also want to take off risk
quickly in your favor
so when i get this move over a major
resistance even though it didn’t follow
through i’m taking off profits through
that resistance
to cover my risk and then really see
how the next pullback is and see if
there’s a potential maybe opportunity to
add or just
if there’s a strong consolidation so
that was our first real pullback there
and you saw we hold uh
1350 pretty well and bounce right back
to 14. so that’s a little bit of a
higher hold now
and then we get a little bit of chop
consolidation here i’m going to skip
just about a minute so this is like the
first real pullback
so i’m still in my long and i’m thinking
okay well 1370 was really a big level
let’s see how after breaking out over 14
if as we pull into 1370 if people are
willing to buy this if they think hey
this can break out again
this has good news i think there should
be real you can see that buying candle
even though it was a red candle did have
the most volume
even since the market opened so real
buyers did come in
on that upward move to 14. so over 14
again and i really think shorts are
gonna have to cover
so actually doubled or almost doubled my
size there
and got longer because i had that nice
consolidation pullback over 1370
1370 is now a clear area for me to risk
off of
if those are bids are going to give out
yeah where did you get longer right
there what price
um looks like 14 10 so on the breakout
over 14.
oh oh sorry not fully sorry so i got
213.90 and then my last 100 at 14
10. yeah i mean it strikes me as
you want to think about could you have
bought that closer to 1370 that’s kind
of the real level right there
yeah yeah that’s very true that’s one of
the reasons why we think about
what the atr in the stock is now
obviously it’s going to be bigger
today but it is a 13 14 stock
and you essentially have paid 40 cents
on a stock whose atr is less than that
my memory is correct yeah it’s uh right
here in my
level i like the so i like the idea that
you know it’s sort of holding a 1370
1350 area
and being along to see if it’ll run from
there
1410 is not a really good price for
that ad yeah yeah i got
yeah i guess i got filled like an
average price of 14 which is definitely
uh not ideal even if it is a momentum
breakout
but yeah the real trade would have been
buying into that 1370
um that’s just definitely something i’m
working on and why i review the tape on
these morning drives and see
look i mean your thesis says hey i think
this is going to be pretty good it’s got
really good news
we’ve got a great deal with google i
want to see if it actually doesn’t go
down anymore
look it didn’t really get down below
1350 when it got above 14
it actually really couldn’t get below
1370 so you’re sort of looking for
even though it’s been a downtrend in
that 20 area in the pre-market you’re
looking for that area where it can’t go
down any further
and you’re saying if i can find an area
where it doesn’t go down any further i
can get long there and then this thing
will run
from that price and so
you’re doing a good job of noticing that
but you want to if you can try and buy
it as close to where you are noticing
support
as is possible right yeah and that’s
definitely something
probably the biggest thing i’m working
on right now is because i often trade
these momentum trades and these opening
drives that
some when they don’t work you do slip uh
definitely more than you’d like
uh when hitting out so that can
definitely be a big
detriment to profits so finding these
support areas to buy into
is always definitely gonna be more i
mean if you’re going to buy 14 10
you know you’re wrong below 13.50 you’re
wrong below
13 60 60. where are you wrong
yes uh probably 1370 like 68
30. i don’t want to see it hold cleanly
but
i guess the real stuff yeah it’s 42
cents a risk
to have a good risk reward you know that
that means you
need to make a couple of bucks
uh three to one is you know dollar
twenty
so think of it that way right definitely
um yeah those
momentum breakout lots definitely hurt
your price or those momentum
if you’re going to buy the momentum
breakout you just can’t have that thing
tick against you at all
for that to work out for you to buy it
at that price
i don’t think you bought it at the right
price yeah i don’t think you did buy at
that right price that this thing can’t
tick against you at all
because you got to have your risk reward
make sense remember our first thing that
we do in trading is we control our risk
we’re going to walk into lots of good
trades that’s going to happen
but even on a good trade you know
getting it
42 cents away from optimal price and you
can’t always get it
exactly at 1370. but 42 cents away from
optimal price it’s going to really mess
up
your risk reward yeah definitely because
it brought my average price there
to 13.96 on the remaining
so yeah and then under 1370 i would have
been out
so about 30 cents risk after
that on total so
definitely like you said could have just
saved myself 30 cents a risk and that
could have allowed for a lot more size
to be added so
definitely um maybe the right idea just
not the right area to add and that’s
definitely
i’m glad you point that out to me and
something i’m gonna definitely
continue to look at and look back at my
other trades and see if i’ve made this
similar type of
um mistake with my ads on my opening
drives because i do often have solid ads
on these trades but the price
i add is usually uh not the strongest
um because i’m trying to do the momentum
ad
yeah you’re right to add you just need
to do a better job getting at the right
price but you your your thought process
as to why you should
add more risk is correct right
okay yeah that helps a lot i’ll
definitely keep looking at that then
and going forward um
we had that pullback like we said to the
1470 it holds
and then we want to see if we can get
over 14 here
and
so we’re starting to see it hold over 14
now which is nice
only tested a center two below
so i sold like one seventh there at the
like top of the range
like 14 34 or 1 6
just knowing it’s kind of pre-market
range there were some sellers and
but then i’m thinking the real moves up
through this 1450
um or at least two fourteen fifty
and in the next minute we are actually
going to get our first limit up halt
so this is really important here to see
how weak this pullback is
to show that there’s real continued
strength there’s like no volume on this
pullback handle
matt you see how that’s made a new high
from the open
yeah yeah see how i’m not moving made a
new high
or out here and then yeah yeah yeah i
mean it just got up into the 30s that’s
the new high from the open
what do you want to be thinking when you
see that new high from the open
look your thesis says hey i think this
has come off from 20 but i like the deal
i think there’s going to be a lot of
buyers that may come into this i’m
looking for support areas
i’ve seen one at 13.70 now i’m above the
opening range
now that you’re above the opening range
what is the market telling you
i should be thinking that anyone who had
been trying to short this in that
pre-market range a lot of them are going
to be
covering out there’s clear buyers with
volumes so this could be a longer term
trend move if it is an institution or a
big desk something along those lines
and what should you be doing uh most
likely adding through
yes and how should you be trying to add
um in this
pullback here when you should be bidding
it’s still volatile
right yeah so you want to be bidding in
front of 14
and at a minimum so i’m instinctively
when i see that
break the top of the opening range and i
see
i see that i’m thinking i’m right i’m
right my thesis is right it’s being
confirmed by price
i’m more likely to be right than i was
before and so
i want to bid at a minimum in front of
14
and then i want to watch the pull in and
if it doesn’t get
back into 14 and it can’t go below a
certain price
i’m going to think about adding you know
maybe goes to the teens i’m going to
think about adding there
and seeing if i can catch this this this
run to the upside does that make sense
that makes a lot of sense to try and
wait for that area where it starts to
slow
and you see that held level and try and
fit in there
for the continued breakout so
i guess this candle we just are watching
might be that opportunity
so you get a pull back don’t doesn’t
quite come to 14
but like 14 11 12 13 was holding well
then we should be breaking out here and
we get a halt soon
yeah i mean do you see how it came into
1411 and it stopped going down
yeah and it started to tick back up
do you see that
yeah yeah bye
bye definitely yeah yeah time to add
risk
bye right there
and then it never pulls back from there
it goes limit up
so i sold another fifth here
right before the halts just figuring
or two fifths so
down to about half of my starting shares
now going into that halt
so then i’ll skip to the reopen
and this reopen i’ll preface
it so we know what we’re looking for um
it’s very strong
it barely pulls back when it reopens
and kind of just holds this 1450 area
and just goes
pretty um it goes limit up again in like
two minutes so
get ready for the reopen so you can see
there’s just no pullback off the reopen
it was in the 50s for a second and now
we’re in the 80s
so i take off some risk again
heading into this 15 area knowing that
that can be a psychological level we saw
some there pre-market
we don’t quite get the 15 so i was glad
i took some out at 1480 there
but still thinking this is really strong
still in the position
still thinking this can go limit up
again especially with the low floats
recently we had seen kodak before this
and
and you can see that 15 can’t even
really hold as a resistance
um i sold out a little more over 15 at
15 10.
i didn’t know yeah and look it’s always
good to have a system to take profits
into a not move my sense is a better
blueprint is
one-fifth into that first limit up
one-fifth into 15 and you should be at a
minimum
long three-fifths of whatever your
original position was
okay yeah i’m down to one-fifth now
and then even less i sold another 50.
when i felt like we were getting
overextended but this is one of the
biggest critiques i have in my critique
slide is
scaling out in all of here there was
really no pullbacks there was really no
weakness like i should really be
thinking this can go limit up again
after seeing so many variables in my
favor into the first limit up
it reopens is so strong and then
just continues going um so we’ll see
it’s about to halt here
at 1573.
what’s the short interest in this uh
the short float i think was only like
three percent
so it didn’t stand out to me too much
so we reopen at
2038 and you can see we open up above
that 16 area
and so this is the last limit up halt
just to give some
context and i’m gonna show you what my
final exit sign was on my last shares
we’re gonna see it break up to 17
have like a large bid there and when it
can’t hold that bid over seventeen
dollars
i take my last um shares off so we’ll
see
i only skip that just like one
okay to reopen in five seconds
you see we reopen right above 16. it
holds pretty well
we even have bids below 16 to hold it up
i’m sorry we had one more haul after
this as well
so yeah hold 16.81 so i still have a
little bit of my shares only 25 trying
to stick with it but
definitely scaled out a little too early
so the last three open is the one where
we push over
17 and then it quickly gives out ending
the trade for me
start to reopen see we’re over 17
sees large bids at 17.
and so i’m like okay we held that held
those bids
we popped up so this is really strong we
should probably just like go up into 18
and go either limit up again or at least
break out to a new high
and then you’re going to see we’re going
to pull back to 17 bids are going to get
decremented and i’m going to get short
and are not short get
flat completely sell my long position
and then the stock actually does go
limit down
from there so watching the 17-17 gave
out and i got out at
1687.
yeah really good exit excellent really
well thought out good job
that’s a great exit and you know really
good
good formulated plan right here good
formulated trade right here
good good example too of what things are
happening
in this uh this marketplace where
you can really catch a bundle by getting
it at a good entry point
really good trade i’m gonna let you end
it there
good work appreciate the tape really
good examples of using the tape really
like how you incorporated that into your
playbook so you have that going forward
and love you love the exit loved your
last exit right there at 17 spot on
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