The Nibble Trade- (RIG)

BellaMike Bellafiore's (Bella's) Blogs1 Comment

RIG was the best stock intraday. 56 has been a huge level. Thursday during the AM meeting Jersey Shore highlighted this level. During the AM meeting Friday he did as well. Intraday he called out, “RIG above 56.” GTL. Gym…..Trading……Laundry. And yet some on our desk did not catch most of the move. Why?

1) All levels are not created equal. A two day high is not the same level as the 8 out of 10 RIG 56 level. Before the trade measure how important the level is for you.
2) I heard some of I didn’t want to chase RIG . Some traders missed the breakout above 56 and were not comfortable paying much above the whole. When a level is so important consider taking on more risk with your entry because there is more upside as well.
3) Do you have The Nibble Trade in your Playbook?

Let’s say you missed the immediate buy above 56 and RIG finds 35c. There is risk that the trade will run away from you. You may not have much chance to enter the trade. And you should always consider your risk when making a trade. But when the stock runs away from you there is the constant hesitance to enter because you missed a better price. There is a paralysis of obsession regretting an entry at a better price. We need to find a way to overcome this with our best potential set ups like RIG above 56.

A solution is The Nibble Trade. Buy a little. But a little a little higher than with what normally you would be comfortable. Now you are in and you can focus on the next bigger trade and not that you missed the buy. Being in the stock even for just a little gives you a better feel for the stock than being flat. You are more likely to catch the Pullback Trade to 57 (A) or the Pullback Trade to 58.15ish (B) or 59.15ish (C). It is trading nature to watch something more closely that you have bought than something you want to buy. The Nibble Trade sets up the real trade for the real move for real size.

Now as to why Vinnie “smushed” with Angelina for that you are gonna have to ask Jersey Shore.

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

One Comment on “The Nibble Trade- (RIG)”

  1. Despite agreeing, I can see why a trader would hesitate to chase a hypothetical trade after missing the first rally. The apprehension of getting in late probably comes from the belief that it’s a newbie mistake to do so, critically, when the entrance is so late that it is just as the price is about to correct downwards.

    Of course, we should always strive to be clever enough to catch these rallies before they begin.

    Here though we had compelling reason to suggest that the price would continue to rise. As you say, 56 has been a very important level.

    I think this is a case where fear of loss, or a particular kind of loss – that made by a classic type of error – may have overruled a clear evaluation of the data. Nobody wants to fall for the oldest trick in the book. But that should not keep us from taking a reasonable risk of doing so if the data is compelling enough. So I agree. It was probably good form to buy a little and put yourself out there, even if a bit late on the rally.

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