The Flag Breakout Trade 📈

In this video SMB Trader Kyle walks through a trade he took in Target after better than expected earnings. Learn to trade this flag breakout trade with well defined risk.

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hey guys kyle here in this video i’m
going to walk you guys through a setup i
took on target
after they reported better than expected
earnings
on a consolidation break that had a
well-defined risk to get involved
[Music]
this is from may 19 2021
it’s a flag on target
you know it’s a consolidation break they
had really good earnings
and that’s why i was in play on this day
so the game plan coming into the day
we’re
i was talking over with this setup with
a few other guys
on the team that i’m working with and
you know we’re simply looking to see if
this would tighten up and maybe flag out
on the day
after building a solid base for me i was
either looking for a one 5 15 minute
flag break
where it’s setting up on those time
frames or 1 5
15 hourly um
it ended up being a little bit extended
on the hourly but that’s okay
you know still setting up really nicely
and it was nice and tight
gave me a solid risk to reward level and
i had a 15 minute level to risk off of
and if we got below it you know the idea
was dead and that was okay
so you could kind of see you know the
game plan below
that the timing point was this 2 16 25
and we’ll go over that
risking off to 14 93 so basically a
dollar 30 of risk and
you know really good r multiples if this
wanted to open up and you know
it had the possibility to turn into a
swing so this was a day that
you know we came into the morning and a
lot of the crypto names actually tanked
overnight and many of them were down you
know
greater than or equal to 30 percent so
you know a lot of eyes were in the
crypto market but you know this is
aside from that one thing to note we
like to look at is vix
and you know the low to high on the day
was 21.88
to 25 and
you know anytime vix is kind of holding
over 20 i
really want to see if i can hold things
a little bit longer because you know
volatility has picked up
and sometimes we get some outsized moves
so the fundamentals of target you know
they had earnings
in pre-market better than expected q1
eps and sales results
you know they blew up their numbers same
day
same day service services rose more than
90
so really good earnings um you know a
few upgrades as well
it was really in play on this day
so the daily volume on this day was or
the typical volume on target is around
3.77 million
arvol on this day was 3.7
so for something like target you know
that’s telling you this is certainly in
play
um on this given day and of course it
had a lot to do with earnings
atr how far you know this stock
typically moves
is about four and a half points so you
could kind of use it as a target but
you know with arvol over three um
you could kind of look for maybe a
little bit more than that maybe two atrs
maybe three atrs
um it all kind of just depends on how
the stock is flowing on that given day
so the short float you know very low
only 1.3 percent
so not that many people are stuck short
you know who really wants to be a short
target
it’s a great company they’re doing very
well
you know the stock is breaking out
and you know the float on this is 500
million very high institutional
ownership you know 82 percent
and typically on day one you know
earnings
you really want to see what institutions
are doing are they buying at the open
are they selling are they not really
doing anything and to me
you know it looked like there was some
institutional
um participation on this given day
so it looked like there’s a possibility
that you know this day it could actually
go instead of you know maybe needing a
day of rest
and for institutions to kind of talk
over how the earnings went and
everything
so the long term on target you know the
daily right here it was at 52 week highs
breaking out on the daily from great
earnings on elevated arvol
you could kind of see it’s been building
some higher lows but kind of
consolidating for the last couple months
and then we broke over that from the
earnings
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this is the setup that actually
got me involved you could kind of see we
you know had that opening push
we pull back in get nice and tight spend
you know looks like an hour or so of
consolidation
of you know going sideways consolidating
getting nice and tight
and that’s what i’m always looking for
you know i want to see a level where
a stock gets nice and tight and i have a
level to risk off of
and if we break out of that level out of
that flag or that consolidation you know
the
theory is if you think people are you
know stuck short on the day
they’re probably risking off that level
or those lower highs right above
and you know you should start to see
them paying you know covering on the
offer
so you know lifting the offer as well as
you know longs who like this idea
um they’re probably taking it around
this level as well so what you really
want to see
is if you’re playing a timing point like
this you know a flag break or
consolidation break
you want to see the stock push away from
price
rather quickly and you want to see it on
volume
and we do see some volume come in um
of course would have liked it to you
know push away a little bit quicker
and with a little bit more volume but we
do see you know volume start to pick up
what are the time frames for each of
those charts yeah so the one on the left
is the one minute the five minute on the
right 15 minute bottom left
and then the hourly on the bottom right
okay and so
for this trade you want to see all of
those time frames setting up tightly
ideally now it was a little bit extended
on the hourly you can see
um that blue line is the 90ma and that’s
kind of how i determine
or get a good feel if something’s needs
to spend a little bit more time
and you could kind of see the hourly
bottom right was a little bit extended
but a one five fifteen minute flag is
still a setup for me that you know i’m
happy to take
the title of the presentation though is
1 5 15 right yeah flag break
and that was your game planning yeah for
the open
yeah so is the hour hourly setting up
tightly
super important or is that just sort of
yeah so
after 1 pm i don’t want to be taking
only a 1 5 15 minute flag break i want
it to also be setting up on the hourly
earlier in the day i will take this
setup it doesn’t have to be as tight on
the hourly but you know if it can that’s
even better
more market participants
um so we could kind of see that um or
that box right there is day one where i
got involved
now you know i was out of it by the end
of the day but this is something that
down the road and something that i’m
working on with someone who i have an
account with
um you know we’re working on some of
these bigger ideas you know maybe
covering risk
and then you know something like this
where it has great earnings
you can just give me the initials who is
the person you’re um
tim okay that was that’s the full name
yeah i know but
i don’t think he cares gotcha um
so yeah something like this that has
great earnings
above 52-week highs you know nice and
tight risk and you could cover some risk
um you know this is something that we’re
looking to swing down the road
so just an idea we do not talk about
this
very much but might be interesting for
initials tim also to take a look at
so we get a ton of research here yeah
and when you’re
game planning before the open for a very
specific trade
it might it might make sense for one of
you
to just sort of take some take a look at
some of the notes that are coming in
yeah on these particular
stocks on this particular stock and see
if it’s
if there’s some research that could
drive this or have some uh
have some added ammunition behind your
thesis
i’m not suggesting to dive really really
deep into the fundamentals or not but
it would be interesting to note that i
actually think initials t-i-m
yeah he loves to dive into it would find
that interesting you might say hey
you’re seeing anything in the research
yeah that can help us
and you can say hey the technicals are
setting up yeah i will say
i think that’s why we do fit well
together he comes into the day with a
lot of you know fundamental analysis
and he’ll tell me why he thinks it’s
mark is in play then he should do his
part you should be like
initials t-i-m yeah what do we got yeah
this was actually kind of prior to
us um forming that account um but we did
talk about this idea okay
good you know this was a setup in my
playbook
it had great earnings high institutional
ownership
um elevated arvol you know definitely in
play over three
three times its typical volume the risk
to reward
on the day was you know greater than or
equal to three to one
anything under that i really don’t want
to really be messing with
um and of course if you’re looking at
this at a higher time frame you know
over a course of a multiple you know
multiple days if you’re playing
for that bigger move definitely 10 to 1
is realistic with you know some levels
we had in mind
there’s a clear level where i’m wrong
out of all of this that’s probably
always the most important for me
i want to know exactly where i’m wrong
you know worst case scenario
that’s where my hard stop goes but of
course you know more times than not
there’s an exit
prior to that full one-hour loss yeah
and so we’re in a different regime in a
different regime
retail has done very very well yeah
retail is one of the places where big
money is putting
uh capital behind for the reopening
yeah uh and so
that’s something to be thinking about as
well which is
hey this is in a sector that’s getting
big money behind it
and that’s a that might be a variable
for you to be thinking about it’s a
strong sector yeah for sure i agree with
that
um and then the final one is that
there’s a clear level where
you know shorts on this given day are
wrong and likely will cut and that ends
up kind of being my timing point that
consolidation break that lower high
break
that’s where it looked like a lot of
shorts were probably going to be risking
off of and
you know we did end up seeing that when
it did break that timing point you know
the tape was speeding up so that kind of
indicates that
maybe some longs are hopping in and some
shorts are covering covering up
so you can kind of see right here um
we’ll start with the bottom right
is you know we kind of wick down a
little bit and at this point i’m
thinking
it’s kind of hard to see that wick a
little bit but you know we wicked
through
uh 215 and at that point it actually
looks like the idea is not going to set
up and
it’s just not going to set up for me on
this given day but then we reclaim
and i was actually able to take half of
my position right there get some better
prices
that’s something i’m kind of working on
with my team or with the team i’m
working with i should say it’s getting
some better prices
and maybe your win rate is going to be a
little bit lower but you don’t have to
get full size there you can take
something
in this case i took half of what i
wanted
and i’m risking off that wick low and
then we kind of tighten up a little bit
i probably should have you know been
showing a 5 minute or 15 minute here but
this is a one minute
we end up tightening up and flagging out
and that’s where i add the rest
um and that’s where i think you know
shorts are probably hitting out and you
do kind of see some volume come in and
that candle
really expands a bit um so what i’m
typically doing
is on my first reason to sell you know
that can be a target i have in mind or
you know some reason that comes up maybe
there’s a stuff
or a higher time frame breakdown
you know on this given day like a 5
minute or 15 minute typically selling
half to cover risk
and then i really want to see that
second half work out in my favor
typically splitting that second half
into three even lots or four even lots
something like that
now in this case you know i get that
first reason to sell i sell half
then we kind of push again and we stuff
a little bit so i saw another third
of my second half and then we kind of
break down again and there’s
you know in that same candle i actually
end up selling
another third so then we pull back in
and we start to consolidate sideways and
this is again another thing i’m working
on as well is
adding back to that position if i’m
going to stay in it
i still have conviction behind it and if
it kind of builds a higher low
and it sets up again well i want to add
something back i don’t have to double up
i don’t have to you know get out of hand
but even adding a third back or two
thirds back
that’s something i’m certainly working
on and often you’ll get a
you know a new level to risk off of so
you can kind of see
i throw some bids out there i throw a
couple offers out there
and i believe i add back a third of what
i sold
you know from my second half so i’m not
overly big but i add something back
um and now all of my risk is off that
higher low right there
and then we kind of start to build you
know some higher lows again
we start to grind higher and we run into
some problems again
up by 217 and i sell half right there
and then we kind of end up breaking a 15
minute level and that’s where i
end up getting flat you can kind of see
i do end up puking kind of
the remainder of my um shares but if i’m
thinking
you know bigger idea down the road
especially with that account that we now
have
um you know this final piece is
something that we could definitely swing
so couple things so do you see where we
break out
yeah we break out above the flag yeah
all right so
things that we want to say we want to
see
increased volume yeah and we want to see
it move away from price a bunch
i don’t know that we really see that
relative to probably the best trades
yeah that flag and break out i agree
that’s going to get me
to be a little bit more cautious when we
pull in
but point two is if there is
institutional participation
and this is going to be clean and this
is going to go for a couple of days when
that actually pulls in
yeah to the level it broke out from
there should be buying there
yeah and it should be relatively clean
and we actually do see that part
yeah we do see that so i don’t i don’t
i’d love to see more volume
i’d love to see the move away from price
better yeah
but i do like the fact that it’s holding
above that area that it broke out from
yeah
i do as well and we actually kind of
wicked down a little bit
a few times and you could do see that
someone is bidding for some prices and
you know holding this up and exactly we
pull into that
kind of breakout zone that maybe didn’t
do the volume that we would have liked
to see but again
you know we hold build some higher lows
and then we’re kind of off to the races
and
this is something that again definitely
does end up grinding higher over the
next few days and
that is you know the area of improvement
that i can work on
so i don’t have the tape but there was a
moment before the setup
for the long that it looked like it
could roll over and people started
slamming the bids
only for it to reclaim and have offers
lift rather quickly so
you know we kind of wick down i think
it’s not going to set up
you know some people maybe had a long
idea that they were waiting for and then
all of a sudden it looks like it’s going
to break down so maybe they hid in short
kind of look like that on the bids but
instead we wick right
back up and that’s actually where i
ended up taking half of my position
yeah and just highlighting that is a key
signal from reading the tape
a set up like that you think it’s going
to break down yeah
it doesn’t it comes back reclaims the
level
yeah that that is that’s a
see it moment yeah from you’re reading
the tape skills
yeah yeah i agree with that and there
was actually a point where i was like
is this short right here and then i was
kind of looking at it i was looking at
where i was risking where i thought it
could
go and with great earnings the risk to
reward really didn’t make sense to me
um but yeah we ended up wicking right
back up
and then end up you know flagging out on
elevated volume you know again we could
have saw a little bit more volume
and we pushed away from price indicating
that you know the idea was more than
likely going to work and i had some good
prices where
you know i was in a good position of
comfort on it
um we then pull in and hold that 215 86.
yeah just
i just want one more point about this i
actually think that’s something you
might think about
for a tag so i don’t know if you want to
call that
the failed wick i don’t know if you want
to call that
a see it moment yeah from your reading
the tape yeah
probably better to sort of call it a
i think the wick part uh the failed
breakdown
breakdown yeah that that’s worth tagging
yeah in my sentence in measuring that
yeah and seeing if you want to put on a
little bit more risk when you see
something like that yeah for setups like
this
yeah because i don’t think i think
that variable to it makes you want to
put on more risk
than others yeah and my sense is
measuring that will give you some good
information for
your trading yeah that’s something i’ll
definitely do and easy to do with you
know the software we use
um but again then we pull in and hold
that 215 80 level
where i’m able to add back and you know
double back up i guess i ended up
doubling back up but again my cost basis
was still
above that higher low i was using um
and we begin to break out and you know
basically i’m in a risk-free position
where i’m risking is basically where my
cost basis is
um and again this is something i’m
always working on adding back to a
position when it holds up
and you know it sets up again so again i
i do like how i saw the position
beginning to develop and took you know
about half size
um when we do wick down and then wake up
back up so you know i’m happy i did that
that’s not something
that i used to do but again with working
with a few guys
they said why not get better prices you
know so that’s something
where you can improve you know the
reward on this position so
that’s something you know i’m happy i
did
i like the way i was aggressive with my
first half and left a third on of my
final half
and added back to the position when it
you know held a new higher low that i
could see
that i could risk off of
um it was almost like i t wapped into
back into the position but you know
i didn’t i was just throwing out some
bids up as it was holding up but that is
something that i could you know consider
maybe just t
whopping back into it a bit and that’s
kind of an
algorithm that we had that we could kind
of throw out some orders over a period
of time
so that’s something i’ve you know messed
with in the past
an area of improvement is withholding my
final third of my second half
it’s not a lot of size relative to you
know what the position was
but i can hold it for a swing as it
closed you know in the top 25
or 20 percent of the move on the day it
had great earnings
high institutional ownership and it was
on elevated you know
volume of over three so this can result
in a really nice day two day three day
four and so on
um so again this is something that tim
and myself
are working on with you know an account
that we have to
you know together and today you know
the stock has pushed all the way up to
228 so there’s definitely room
to kind of you know make a little bit
more on this position with riding out
part of it as a swing but yeah that’s
about it
yeah i like the idea of thinking about
this longer term as well and you can
trade your personal account
yeah and have certain strategies and
then initials tim and you can be working
on this i don’t want to give them away i
think i did
um you guys can be working on that for a
different trade
yeah together so that’s that’s really
good uh while we have you here
thanks for doing that but while we have
you here i know you’re working on one
thing in particular with dr steenberger
if in a couple minutes you might share
if you would
what you’re working on yeah so um right
now
i will say that my main focus after a
little bit
of a bigger loss than i wanted to take
um just being you know completely honest
with that earlier this month is
focusing on my playbook and only my
playbook and putting on risk
or when i’m thinking through new setups
only putting up putting on up to five
percent of my daily stop on those setups
that are kind of outside of my playbook
or even
you know just thinking about them after
the close
so really focusing on my playbook right
now is
how are you doing that specifically um
so
well it’s a main focus and every day we
have this daily report card that we’re
doing and i’m sending to you
and dr s on whether or not i focused on
you know my playbook and that’s the
number one question at the top and
that’s what i have to answer every day
okay so you’re working on that and
giving yourself a grade
yeah good all right so good example
there of
of how you slow down a little bit yeah
focus on one thing
intensively yeah give yourself a grade
for something and and make some progress
okay good questions from you guys can
you explain what t-wop is
a little more in depth it’s like an
algorithm basically
where you can get the average price over
a period of time so say you want to
get back in you know
you want to get the price within the
last hour you can set it for an
hour so yeah it’s a little bit confusing
but basically
if you want to get filled
you know if i wanted to walk in for 30
minutes i can get the average price
so that’s what i could have done you
know set it and forget it and then it’ll
slowly work my way back into that
position
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