Trading a Stock With a New Vaccine (profitably!)

In this video, learn the surprisingly effective trading strategy nearly everyone missed during the GameStop opportunity. See a firm prop trader and me recap a simple, effective, and thoughtful trading strategy that you can use to help grow your trading account.

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in this video learn how to trade a stock
with a new vaccine
profitably 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
see a firm prop trader in me recap an
effective
and open-minded after hours trading
strategy that you can use
to help grow your trading account
[Music]
i’ll be presenting a trade that
consisted of
multiple intraday breakouts and a
momentum name in this case it was
ocgn and this is from about a week ago
a week and a half ago so i’ll start off
with the big picture
that’s going on the market at the time
obviously the coronavirus pandemic is
still
at the forefront of pretty much
everything
that’s going on in the news but there
are multiple vaccines being approved and
distributed
and mass vaccinations have begun
in almost every state and biden is
around one month into his presidency
this is the market at the time of the
trade and as you can see we’re at
all-time highs very bullish to the name
and question
ocgn is a low-flow healthcare stock it
is heavily shorted
and has seen many days of high arvol
since releasing news
of a new covet 19 drug that is in
development
it seems like they’re a little late to
the game but that isn’t really relevant
for the trade that we’re putting on here
short float is around 15
going into this day but it can be
assumed
to be much much higher by the end of the
day which is where most of the trading
that be seeing here is taking place
so i don’t have a minute to minute
update on the short flow that’s kind of
impossible to ascertain
but we can assume that if we’re going
into the day 15
and a lot of craziness has been
happening this number could be
you know more than double that by the
end of the day and short squeezes
uh have been a massive theme of the past
month
um the average volume that this does is
about 65 million shares so it’s very
liquid
but on this particular day traded over
700 million shares
on a float that’s only 150 million
now the atr is under a buck
but this isn’t as relevant when an
expansion
as crazy as this occurs so here’s
the daily chart i spent all
year around a dollar share very little
volume
and a run-up with volume once they
announced they were working on a
treatment
and this becomes a new chapter for the
company
they’re essentially like a new company
and then this
high volume high price bike day is the
day in question that we’re going to be
talking about
we’re breaking out of this range
so we can see that this has a lot of
eyes on it and maybe a lot of people who
are
trying to short this saying it’s
overvalued in the short term
blah blah blah but those people can be
trapped as dr steve barker say that’s a
technical term blah blah blah yes
and and in this market you have to have
a sense of humor and you have to
understand that term blah blah blah
because
it’s almost like you have to suspend
this belief and some of these moves
and this is one of them so we have a
parabolic run-up on a tuesday
is very bullish and we go from
trading the prior day at about two
dollars a share
to a high of almost four dollars a share
and we can imagine on this very high
volume day
that this is getting a lot of eyes on it
a lot of people looking to short this
type of move
a lot of traders see this and rightfully
so
in the short term think that this is
unsustainable
and i’m going to bet against this this
upward price movement and profit
when it goes back down to two bucks and
it does move back down
but what we see over the subsequent two
days is that
it really just consolidates i mean it
doesn’t fade back down to two dollars or
a buck fifty we’re staying in this three
dollar
3.50 range for the next two days and
that’s actually really bullish
for a stock like this a stock that
doesn’t have a very large float
and has a lot of people trying to short
it the most bullish thing that could
possibly happen there is it just doesn’t
go down because eventually all it takes
is
a little bit of short covering to create
a lot of short covering
and that’s what we see on the 8th
when we have the start of a real short
squeeze
that’s confirmed with a lot of volume in
the middle of the day
this doesn’t coincide with major news
announcement
or press release or anything like that
this is just simply
as the price is going up more and more
people are exiting their short positions
which causes a positive feedback loop
to absolutely rip this thing up to
almost six dollars
and this isn’t even the trade that we’ll
be talking about yet
but a very legitimate trade would be
an entry around this you know four
dollar mark here
over the highs of the day one where you
know a lot of people are going to have
their stops
if you want to learn three more real
world setups that our traders use
including the simple setup that we teach
all of our new traders and the setup
that turned one of our traders into a
seven
figure big money earner check out the
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than from years of online education
and here’s the one minute chart from the
day in question
we have a pretty light volume day
still hanging out in that three dollar
3.50 range
and then a parabolic run-up tops out
about six dollars
and at about two o’clock in the
afternoon and then pulls
back in to v1 and this really gets
myself and a couple of other traders on
the desk interested
because it doesn’t absolutely collapse
here
i mean obviously we just went down 20
percent
in 10 minutes but when you’re talking
about moves like this
20 percent that doesn’t really matter
houston were you talking with somebody
in the middle of this trade yes actually
myself and max ganec were talking
through this trade pretty heavily
okay so
you know we were talking about there are
a lot of people
shorting this parabolic move thinking
that now
the backside is in that will fade off
into the close
and this is something to take home short
and
profit but when we’re not breaking down
when we’re just consolidating into the
close this is actually very very bullish
and this is what makes me want to get
long
good so you’re thinking about
who could be trapped on the short side
for this trade
and could get in trouble if it gets
above a certain level
absolutely even if those levels are not
sustainable for
a longer time period you know even if in
six months we came back to look at the
stock it wouldn’t be above these prices
over the next day two days hour
two hours if it got above a certain
price the shorts would be in trouble and
they could set up a good shirt
short-term active trade for you exactly
exactly
so my plan here
is there’s been a run-up midday then a
consolidation
all afternoon which is exactly the
opposite of what people who are shorting
this thing want to see
so i want to buy above that
consolidation high
and then above the intraday highs in the
after hours
into in anticipation of short covering
and this works for a couple of different
reasons
you know i typically don’t take a lot of
trades after the market closes or i
haven’t in the past but this
is a scenario where that’s actually
working to your benefit
a lot because the liquidity is less
in the after hours and people who are
trapped short
you know a lot of them cannot exit on
um you know just offering in and out
they have to pay the offer for it and
when there’s less liquidity
this can cause much greater moves to the
upside
i really like what you’re doing there so
you’re
acknowledging that we’re in a different
market the market is not going to be
always the way it is right now this is a
forgiving market
it’s an incredibly strong market we’d
love it we’ll take it let it stay for as
long as it
as it’s here it’s a very different
market than
when you interned in when you first
started interning with us
which was lower volatility and
stressing on the desk of different types
of setups and what you’re doing here is
and and i see this as a really
strong strength of yours going forward
is
you know one you’re networking so
you’re you’re not just sitting there and
saying oh this is turning over
fundamentally the stock can’t can’t go
up anymore
it has to be a short and
and and thinking of all the reasons why
you guys are right
you’re thinking about the other side of
the trade
you’re thinking of it would be right if
xyz would be wrong if one two three
and you’re thinking through that and
you’re and you’re doing that with
another trader that’s
terrific and then
uh what i love that you’re doing even
more and something super important to be
doing in a volatile market
is you’re acknowledging that it’s new
and you’re finding the new patterns
you’re finding patterns that you may not
trade
two years from now very hard to do
to spot patterns in a new market
and make them your own quickly that
pattern
that you spotted is working whether it
should work
it doesn’t matter whether or not the
stock should be higher or lower in six
months or a year doesn’t matter
you’re finding what works and that’s
what we do here
and and and i would just say that that’s
hard for sometimes people to
particularly
someone like yourself who has a very
strong engineering background
likes things probably to be neat and
tidy and makes sense
this is this is a this is a good job
of you of pushing that aside and just
understanding what is working
right now thank you thank you this trade
pans out as soon as the market closes we
get
a spike a first move up where short
covering
is obviously happening there are all
these shorts
from this high volume area over here who
have realized that the day’s over and
their idea
did not pan out and they’re thinking to
themselves well
now i have to cover and we’re in the
after hours and liquidity is far
less and they have to pay the offer and
that’s when you get from
you know five dollars to 550 to six
dollars
where i’m buying in in two lots one over
the highs this consolidation
then one over the highs of the day and
then
we get this consolidation where
i theoretically could have gotten even
bigger
and then a rip up all the way to almost
eight dollars
and i’m scaling out in 10 lots
in this move of strength which is no
doubt shorts covering
into the close this is a very
straightforward
trade can you say that again the stock
got above
the consolidation area at what price and
went up to what price
this move started at 550
and was at almost eight dollars
you know an hour later and would go
much higher than that the following day
that’s a good move crazy
very crazy may we trade in interesting
times
yes i hope we always do now we’ll go
into
the trade review so this is not a trade
in my wheelhouse i
i’ve never really traded in the after
hours before but
i want to expand my playbook i want to
explain my
playbook with trades that have
consistent edge and the highlight of
this trade was
honestly taking it and now knowing that
i can take it with a larger size
next time you know talking through this
trade with
some more senior traders definitely gave
me confidence to
put it on breakout trades in general
aren’t something that i typically take
if there’s not a fundamental catalyst
or a reason for a short squeeze such as
this one
you know i find that a lot of these
breakout traits don’t always work
but this type of intraday breakout has
mechanics to it that give it edge beyond
just a line on a chart
by above high a day that kind of thing
it’s a highly shorted
low flow with a lot of eyes on it where
the backside is supposedly put in
both two days prior and then at 2pm
on the day of but neither of those
backsides actually materialized and we
can capitalize
off the short covering that ensues after
highs are breached
in the after hours when things are less
liquid
this is a trade that had a lot of
check marks ticked for it and that’s
why i took it and why the next time i
see it i’ll be able to take it with
a much larger size yep huge advantage to
work
at a prop firm tapping into the
intellectual ip
of other traders starting dialogues with
them
and and learning from them
and i think this is hard to do houston i
mean i
think which it’s hard to to on the fly
learn a new trade from somebody else in
an area that’s not that comfortable for
you
and dip your toes in the water
and get out of your comfort zone
that’s that’s a real strength we may be
witnessing from you right here
not easy i appreciate that i’ll just say
and i encourage
those listening and watching to think
about how you can do
this so we’ve identified a trade and the
trade is a good one
and i’m sure it will last for some time
when we’re in the straw market but the
real leadership that houston is showing
right here
is an ability to learn from others and
to be uncomfortable in something new
and make it his own and so we got to all
keep doing that that should never stop
that’s a part of
being a solid trader that’s a
characteristic we see amongst elite
traders
is the ability to feel uncomfortable and
broaden their playbook
so that they are uh better and bigger
and and and are doing more things
all right well i think we can wrap it up
here and thank you guys very much
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* no relevant positions