The Secondary Trading Strategy (done better)

In this video, learn The Secondary Trading Strategy done better. A firm prop trader breaks down his Secondary Trading Strategy and then Mike Bellafiore challenges him to consider an even better way to trade this strategy.

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in this video learn the secondary
trading strategy
done better 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
and the playbook in this video a firm
prop trader
breaks down his secondary trading
strategy and then i
challenge him to consider an even better
way to trade this strategy
let’s get to work on sharing these
important trading lessons
so you can grow your trading account
this trade was on skills and this was
following their offering
and this was actually two days off after
the offering
once the price was released and
my game plan coming in was to use that
price as a floor
which ended up working pretty nicely for
a end of day breakout
all right so here’s some uh details on
their offering
so it was announced on march 17th in the
and it was a 32 million share offering
and this was an underwritten public
offering of their class a shares
and this was split into uh kind of two
first was the skill shares which was uh
million and then the second portion was
uh some of the stockholders which was 15
this is just going to uh general kind of
working capital and
corporate purposes and then none of the
stockholders shares are going to be
counted into that so
just the 17 million will be used
and then two days following in the
pre-market the offering price of 24
was announced which was actually uh
a little above where uh a little below
where it was currently trading at
so sam this is a secondary offering as
opposed to
an ipo yeah it was just an offering
this uh was a spec merger back in
so this was just the uh secondary
offering to
raise capital and then going through
this is just kind of a
uh brief history of skills
and uh some recent catalysts it has had
so december 17th it was acquired by spec
and it started trading on the nyse
in first aid trading really solid move
around 18 to 22. consolidated for a
really received some uh buy targets and
price target raises
which was a pretty positive catalyst but
the the big
move for this was their nfl deal which
was a multi-year
gaming and esports agreement and you can
see by this move it
super strong 29 to 46 which is around
like a 61 percent move
and that is in a uh pretty much a two
day period
so this sell-off was a little warranted
but this was also around the same time
a lot of the growth stocks were starting
to get hit really hard and especially a
lot of these spec
names that have moved a bunch and this
fell right into that category of a spec
that definitely ran a little too much
you can see by the price movement if you
want to learn
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and then i had another little positive
catalyst for their
first earnings since the stack merger
and they actually had a lot of uh pretty
key points in this
revenues doubled gross profit grew by 95
and a few others including strong
and then i’ll go into this a little
further but uh
you can kind of see how this 24 range
which ended up being the offering was a
very key level of support and uh
on that slide is definitely one of the
uh big big parts of my trade
to lay down some context a really good
sector to be in
you know you’ve got gaming
you’ve got esports and then
uh the spac sector has been pretty
interesting as well
yeah definitely so this had a lot going
for it for uh a pretty
pretty wild move like this and just for
a little more context skills
is a uh it’s kind of like an esports
company but it’s more in the
competition fields so tournaments
and stuff like that and it does a lot
with uh
android and iphone games too so this nfl
deal was
uh really big news at the time
so now i’m gonna go into the offering
and this is following the earnings the
earnings was
a few days prior got a nice little pot
from that
and then uh got hit pretty hard the
previous day
and then after they announced the
offering uh it went from around 30
down to this 26.50
so i got hit pretty hard and uh
i wasn’t a part of this trade at all
but this is another setup i like to take
we get a re-test into the offering
not the offering price but the uh the
price zone where the offering was
for a continuation of the uh
the move to the downside but uh
yeah this so this just covers what i
already touched on the 32 million shares
with uh 17 million being free skills
and then following the retest that
offering price we saw
pretty steep selling through uh the
offering price low
down to this 24 level and the offering
price the secondary offering price was
yeah and that was announced on this day
march 19th
so at the time it was trading around
like 25 24
50 then right around so that would be
eight eastern it was announced that the
price was 24.
if you can just go back to the last
slide just so that we
i think you guys know a lot more than
other people who may
watch this in the future so
uh you see there’s an offering announced
on march 17th
so am i correct in
uh stating that there was just an
announcement that there was gonna be an
but but that the price hadn’t been
offering price typically comes out to
uh sometimes one day but typically like
two to three days after
and most of like the the big traders i
i would say don’t get involved until the
offering price is announced
because kind of in that two day
in between period it’s a lot of
speculation of
what you’re thinking the offering price
could be so let’s say if it was trading
at 26 like 26 became
a key level support following the
and then all of a sudden the price is
announced and it’s at 24
if you’re in long you’re just gonna get
killed for that two points because
uh like i said earlier that 24 is
going to be a magnet price is going to
get pulled into it
and for this trade i’m looking for for a
bounce off of the
price you really want to see it get
a few attempts to to get under 24 but
then ultimately
consolidate above hold above and then uh
see some volume coming in to the upside
you’re sitting at your desk and
it is announced that there is going to
be an offering
in skills it’s march 17th you’re at your
desk and there’s an offering that that
gets announced
that can be a good breaking news short
trade and the reason for that
is if you are going to buy a secondary
you’re going to want it at a discount
to raise money you’re going to have to
offer it at a discount
and so it’s almost always not gonna
it’s gonna always almost always trade
below the price
that it’s trading at when they make the
so there’s that there’s that trade and
then there’s
after that there’s some speculation
that can go on but but i’d almost say
the price that it’s trading at
at the time of the announcement can can
be your resistance as well
because it’s almost always going to
trade lower than that so
you’ve got a breaking news trade and
then you’ve got
resistance trades a resistance level to
be considering
until there’s actually
a price that’s put on the offering
and so if you move to the next slide as
you were saying sam
two days later they actually give us the
yeah exactly and uh at this point just
in the
the two-day period prior it’s down nine
and this is something i like to see if
i’m going to be taking
a bounce trade off of the offering price
i i want to see it really weak
either the previous day or the previous
two days
so there’s a solid amount of meat left
on the move
and then uh because if it if it is
priced at
25 or 26
it becomes a totally different trade so
having the offering price at 24 ended up
working around
working out like perfectly i would say
yeah this slide just
emphasizes that uh 24 offering price
and it’s a good sign in the pre-market
that we’re already
kind of hovering in between that price
running through it very steeply prior to
the open
i’ll just provide some context here so
stronger the stock prior to the offering
price announced
the less likely it is to actually go
back to that
offering price so if you’ve got a really
strong company that’s done
really really well and there’s an
offering at 24 bucks
that stock is going to hover higher than
and you’re going to look for value
buying up there
the fact that it’s pulling back into 24.
uh look i think this back there’s a lot
of reasons for that
but it’s not always going to be the case
that you’re going to go find that
offering price
uh in fact the stronger stocks are never
going to get back there
yeah exactly going into what i touched
on with the
the 24 level you you can see
going back to uh december when the
spec merged this kind of 2350 to 25
became really key support resistance
like coming in there’s previous
resistance finally get above
acted as support and then we also this
was the same level
of the earnings where we got a bounce at
so coming in i’m
pretty happy with this zone as uh
my possible entry zone and
to get involved i’m going to be trying
to buy on this lower end the 2350 end
or ideally we could get like a quick
wick down to 22 and i could uh
pick up some shares there but you’ll see
in this example
this 24 kind of 2350 ended up being
where all the true buyers were stepping
in i would say
so coming into the morning this is
similar to this
previous slide i showed this was the
uh trading plan i had so for
my entries when i’m involved on these i
want to buy in if there’s a
steep selling right on right off of the
open i want to buy into that with
smaller size risking below this 23.50
just to pick up a little bit of shares
and see if i can get
solid prices before if we do
end up consolidating above the level why
do you want to buy something that’s
the secondary price so
that kind of gets me in at a position of
so for this setup i really don’t only
want to be involved if we are
but if the stock is so sam if the stock
is so strong why would it get below 24
well it’s not strong at the time that’s
it’s kind of i mean you can see by the
chart it’s
super weak so i’m hoping there is kind
of another leg is selling
and then ultimately we end up holding
above the 24
so if i’m in from let’s say 23
60s or 23 80s and then
we we’re consolidating above this 24.
i’m at really protected price
where i have like high conviction that
we’re not going to see those 2350s again
at least for that day
or the following two days so then i can
set stop it break even but
this was more for kind of like a quick
scallop and then hold a core
around it there’s a lot of different
ways to uh treat the entries on this
so what’s your stop then so for this one
it was
23 like in between this 23 to
23 45 range and i just had
limits stacked at a 75
70s 60s and then 52s
and then i was risking all those against
i think it was like 23 44 and then if i
got hit out of that i would
look to revalue it so you’re really
playing against that 2350 level
yeah why is that 2350 level to you
more important than the secondary price
of 24.
it’s more so just playing it against
this support range
it’s not that 23 50 or 24 is more
it’s more so where i can get the best
prices so if i can get
23 then i know that 24 has a high
or 23 50s and i know 24 has a high
of uh being kind of that floor for the
so i’d much rather get in at these lows
rather than just buying 24
right off the open and then for targets
uh these are just some of my initial
targets but
uh as the trade goes on you’ll see i
kind of alter
end up not really taking too much off at
the 25 level
and end up holding most of my core to
this 26.
so this is kind of exactly what i want
to see for a all-day consolidation for
a end-of-day breakout
so i’ve taped on this but
we ended up coming into that little
spike range
but the most important part of this
consolidation is
this uh 3 hour 45 minute period
following the first 30 minutes of the
open where we’re consolidating above
24 level we only drop it once
and you can see we drop in instantly
come down again buyers are stepping in
there’s a
really strong held bid at this level
and then this 2450 was
resistance for the day so for for a
trade like this where i’m looking for an
end to day breakout
i want to see a really long
consolidation period like this
and then i can look for some measured
moves for profit targets
sort of thing but uh this kind of just
highlights uh
the period so it’s from 8 40 a.m
to 2 p.m so pretty much full day
consolidation going into the close
and this was only within a 15
range of its atr so 50
price range and then for an end to day
i want to see this holding above this
24-70 range which is high of day
and then ultimately 25 which was
for a uh a push to the 27
26 range this slide just shows like the
full day of price action
the most important part is this volume
coming through
at the end of the day once we reclaim
this 25 level
so you can see all day consolidation
majority of it is above that 24 level so
that’s a check in my favor
we have a little trendline breakout not
putting too much emphasis on that
i’m putting most of my emphasis on this
pre-market low
to high day range and to be able to hold
above which we
have here and that’s a really big change
in character for the stock
to be able to uh break out above
24.50 come down retest and we see buyers
step in
and at the same time we start to see
volume pick up
you can see even this first like this
first volume bar and then these four
large ones are
all i mean massive compared to
all the volume bars following the first
30 minutes of the open
so we see volume fade get above 2450 we
see the first inflow volume
but then the true volume comes in on the
breakout and then just for some targets
uh the previous day is low as well as
the after hours low we’re stacked at the
same level
so that’s obviously a a
pretty strong spot to take off some risk
whole number as well and then i only had
a little bit of size for this last push
to 27
but that was also the opening range low
as well as the pre-market high so that’s
pretty strong confluence level in these
two for targets
and then i have a i can play a quick
tape of
this 25 breakout and you’ll see the
uh the change of character so the main
thing i’m highlighting
on this tape is the volume inflow
and just the change to be able to hold
this uh 2450 so
at the time right now we had that first
push above high of day
pulled back and we just got bought back
very steeply you can see this move from
24 50 to 25
is all in one minute really no selling
pressure at all in that candle
so now we can flip over and look at the
for this uh 25 breakout
and another change of character is this
so once we are able to hold above they
stacked the bid
really strong on the 90s and we weren’t
able to drop that level once we
got above the offers are still looking
pretty strong
oh and something else on the highlight
this was a
more of a swing trade so i bought my
first shares
in the pre-market at 23.83
then i got my last fill at 23.66
that’s kind of that range i had a bunch
of my limits stacked at
and i didn’t take any any of my size off
in between this range at all because
for this trade is either it’s gonna it’s
gonna work or it’s not i’m not
too interested in taking a little bit
off at
2460s or even in this range
i treated this trade as a swing trade so
i’m still in
full size so i was kind of sitting on
these shares all day
during this consolidation range
especially when it was holding above 24
i was like all right
i’m going to hold 100 of my size as long
as we’re above 24
and then i’m gonna start piecing out
above 25.
and so now we’re approaching that 25
and you can see the offer is stacked but
uh the size is just taken out almost
instantly in the 98s and 99s
now we’re coming into the 25s
and if i once we see this 25 break
i really want to see a bunch of volume
come in and let’s not just wick above
and then have the offer step back down
on 25
i really want to see us crack this level
and see continuation through
so there we go we get the we get the
crack but
really not that continuation yet
now we’re starting to get a little bit
of a move
and you can see i have some exits
layered out looks like i have my first
one at
25.33 all right i took a little bit off
at 25.07
just in case we did get that wiccan
now 2508’s hop on the bed with a bunch
of size
you can see we’re we’re getting pretty
solid pretty solid volume coming through
but this is nothing
crazy it’s a change of character but
for 25 dollar breakout especially with
how key this level was internet
i really want to see more volume come
through which
starts to confirm in a few minutes i’ll
fast forward a little bit
so i ended up deleting that first exit
i took another chairs off at 25.37
but the way the one thing is we’re just
kind of grinding higher at this point
we’re not having any explosive moves yet
so i
i’m definitely ready with uh
my fingers on the hotkey just in case we
do get a quick reversal
these for something like this i i want
this move to be much faster than we’re
seeing now
but it is a good sign that the bids keep
stepping up
like 35 40s with a bunch of size too
and now we’re starting to see the the
tape speed up a little
a little bit faster we’re coming into
took a shares off again at 25 47 in
front of the whole number
or the half number you can see we we got
through this 25 level
25 50 without really a fight
so at this point i definitely could have
done a better job of holding on
to more of these chairs you can see i’m
already down to 50
of my position one in reality uh
there was really no reason to be
trimming too much size
without us kind of wicking around and
then i have another video
next on the uh a solid
reason to exit
so at this point this is fast forward a
little more
i’m out of uh majority of my size i
trimmed a lot in the upper 26 range
but uh just to show this was kind of
where i ended the video
previously and then we were able to hold
above this
2650 level which is that previous
and see some follow-through and this is
coming into the last
5-10 minutes of the trading day
so now we finally crack the 27 level
and this is usually my uh
my main exit signal is when we come into
a whole number
we push above but you’ll see we end up
relatively soon and then we
completely reverse and we’re back at
these like 25
40s within a matter of two three minutes
because at this point we’ve ran from
to 27 in the matter of
less than an hour so it’s definitely
getting a little overextended
so i took a few more exits got some at
so at this point still
really no reason to be completely flat
on the trade
fast forward a little more
all right yeah so here’s kind of the
point so we’re
the those 20s drop and now you can see
all the bids are just kind of getting
much weaker
and for me to hold this trade or
possibly read there’s some solid reads
these spots but for this you really want
to see
27 holds in that drop
you can see a little bit of size on 27
but that gets taken out
really fast and these 90s aren’t really
showing any type of bed at all
so when you see the wick above pushed to
like 27
above 27 and then 27 drops
almost instantly these 90s are somewhat
but then once those 90s drop that’s
when you want to be totally flat though
at this point i’m not really worried
about getting totally flat but i end up
cutting it
once we drop 26.60
and then i think yeah i stopped the tape
right there but it’s just kind of like
the whole number
wick above and reversal to get flat
after we’ve already seen the whole move
and then to wrap it up here’s just my
exits and entries so i had some in the
trimmed uh most of that size just right
off the open
for a little bit of cash flow to uh pay
just in case if i do get stopped out on
all these stacked limits i had talked
about previously then it’s
either a small loss or a risk-free trade
and that that allowed me to get some
pretty solid entries in here
and then like i said i held all this
size for
a end of day breakout which ended up
working out pretty nicely
and then a few things i could have
worked on better
is definitely these first few exits at
the this first uh tier at 25
07 and then these 25 50s
i think since i held this trade all day
i definitely should have been a little
more uh
patient and taking risk off and waiting
for the first turn
because the first turn or kind of sign
of weakness ended up coming at this 26
so definitely should have kept a core
for uh
the rest of this move into 26 and 27.
uh you can see the wedge pattern that
between uh you just would draw that
wedge pattern
is there a trade for you to add size as
that breaks above the wedge pattern
yeah this is that’s another uh thing i
could have definitely done
better for this trade you can see i had
no reads and that this is such a clear
wedge breakout pattern and then even
when this volume confirms instead taking
these exits off at 25
like some of these should be adds for my
especially once we have that confirmed
above hive day we pull back and we just
have that
candle so right where i started that
first tape video at
once we broke 25 that 100 percent is a a
possible re-ad spot
i just wasn’t initially too confident
adding on
like this first wedge break because you
could still see at the time the volume
was super
dried up it’s coming into the close
i know this isn’t too correlated to spy
but spy at the time
wasn’t looking uh rel like too strong
so i just wasn’t super confident on
adding and i was already in
uh for mia’s pretty solid chords
around the the core i was trying to get
uh coming into the day
so i was happy with my size and at the
time the context didn’t look great but
i mean tape wise definitely some
momentum ads
should have been put on and the 25 or
front run the the 25 break at like 24
or something from my seat
developing a strategy where you’re
above 24 and getting bigger
because it’s holding above 24
is a strategy that will lead to more
and allow you to be bigger in this setup
i don’t want to sit here and say
that you shouldn’t think ever about
buying below 24
and certainly there is that 2350
support level from some of our longer
term charts i just
don’t really like the idea of buying
stocks below support
support is 24 that’s the place where
they did the deal at
when it’s trading below the price they
did the deal at that’s below support
you know it can hold it can wick below
it can shake some people out below there
but you tend to make the most money in
trades that are clean
and you tend to make the most money and
trades that are showing
strength on the long side and then
confirming your strength
it’s a bit of a it’s a bit of a trade
that’s too hard
to trade it below 24. i think he got a
little bit lucky
i mean i see the 2350 level but he got a
little lucky that you didn’t get stopped
out uh
i don’t think it’s terrible because i
think i do think 23.50 is is a little
bit of a level
um but
for my seat i would recommend giving my
two cents
that a study of how do i buy
this when it’s holding about 24 and how
do i buy more of it
is a more sustainable psychologically
easier a way to get bigger a way to be
more consistent
strategy than uh but i
again i don’t want to
tell you guys how to trade uh if you
feel like
on your longer term charts 2350 is
technical support
and you feel like that in combination
with a little jiggering around 24 the
secondary price makes sense to you
i mean okay and as long as you keep your
your stops tight
okay i think that’s a hard trade
i i think that the buying above 24 and
the adding when the wedge pattern
breaks back to the upside and when
it’s holding above that 24 60-ish area
that’s an easier trade and uh yeah i i
totally agree with that
uh when i was doing like setting up the
this kind of powerpoint one thing i was
thinking about was the uh
kind of why put all my eggs on the
right off the open with all these limits
where this very well could have
opened up and just washed everyone out i
could have
all my longs could have triggered and
then stopped out in a matter of
10 seconds and i probably wouldn’t have
touched this trade i would probably and
it wouldn’t have meant anything
and it could have done all of that and
not meant at all that it wasn’t going to
trade higher
that’s what i meant by saying you got a
little lucky because that can definitely
without it meaning it’s going down or it
can just be
some stops getting set off because it’s
below 24
and some price volatility
because it’s below 24 where
you can’t really control your risk as to
how much it’s going to wick
and trade below 24 for a short period of
but when it’s holding above 24 and time
goes by
it’s easier to control your risk anyway
appreciate it sam
and thanks to the tape really good job
with the tape there and an excellent job
with your exits good example there hey
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