Hi Mike,

I just read your blog post on the SYY trade you guys made the other day. It was basically a play for an opening drivethat you wanted to add to your traders’ playbook. Just a quick couple of questions, if you don’t mind:

1) Would you be more aggressive if you see the bid hold at 30.63, drop, but then doesn’t drop much, and then rebid? Basically, would you be willing to put more shares/risk on the trade after seeing that shakeout? If you saw the bid holding at 30.63 for the first time, would you go with smaller shares? My reasoning for going in bigger after the seeing the shakeout is because of HFTs messing around, which leads to stocks not trading as cleanly as before and more prone to shakeouts.

I would get bigger.  Now you have a more defined potential loss.  If the 63c area drops it now appears there will have to be some selling done below this level for SYY  to trade lower.  You will be able to see this and exit.  Before we were not clear where we could exit so we must trade smaller.  Our stop was below 50c but we would not be sure whether we could exit a Two Lot position below 50c.  Great question btw!

2) I was thinking of a different variation of how this trade could’ve unfolded and how I would trade it. The scenario I was thinking of is this: 30.63 bid holds cleanly and does not drop. I go in with 1 lot, maybe 1/2 lot. Because I haven’t seen a shakeout yet, I don’t get as aggressive. Then, the bid steps higher and then holds higher, and this time, I put in 1 more, perhaps 2 more, lots into the trade. My reasoning for getting aggressive is because the buyer stepped higher and held higher. What do you think of this? Would you get more aggressive in this scenario?

I would be more aggressive in this scenario.  This is a common pattern of a very strong stock.  Someone really wants the stock so is willing to buy higher AND is not willing to risk dropping the bid to buyer lower.  In this HFT age where so many trade with algos why isn’t the buyer buying into dropped bids that are getting hit?  This from the tape can indicate a very aggressive buyer.  I caution that this does not mean the stock must trade higher.  This is a signal from the tape that this might be an aggressive buyer pattern.  I like my risk/reward with this set up so will buy more.  If the trade doesn’t work then I reevaluate and move forward.

As always, your advice/feedback is much appreciated. Happy trading!

Great job working on your trading game!  Really enjoyed the specific questions above.  Well done!

Mike Bellafiore

Author, One Good Trade