What is Your Big Picture?

BellaGeneral Comments, Mike Bellafiore's (Bella's) Blogs3 Comments

Every trader must see their big picture. At SMB we make trading decisions based upon three factors: Reading the Tape, Technical Analysis, and Intraday Fundamentals. We teach our traders to think of a big circle with each of these factors inside. How do you determine your big picture?

Today during an informal discussion one of our new SMB Training traders, let’s call him Smooth, asked about a trade we make based upon Reading the Tape. I asked the room to take a step back and remember the big circle. Understand the context of this question. The question was about the prints which we use to determine the strength of the tape. So keeping our big picture in mind this was a question about a slice of a slice. A part of our decision making is the tape and a part of determining the tape is the prints. So we would only make a trading decision relying on the tape if it so clearly told us to buy or sell.

Most traders make trades based on technicals. OK, great. But what is your circle? How about considering long term market technicals, intraday technicals, and the technical of the sector? Couldn’t that be your circle?  So if the market is extremely weak and you want to get long a stock based on just intraday technicals you better have a very clear signal from your intraday charts. Remember the big picture please.

Let’s say you like to invest based upon fundamentals. Terrific. But what is inside your circle? Perhaps you could consider the fundamentals of the whole economy, the fundamentals of the sector your investment is in, and then the fundamentals of your stock?

What is inside your circle is not as important as you are considering the big picture. To make excellent trading decisions requires you to determine your big picture.

You can be better tomorrow than you are today!

Mike Bellafiore

One Good Trade

The PlayBook

No relevant positions

3 Comments on “What is Your Big Picture?”

  1. Thanks for the eye-opening post Bella!

    I used to be the type of trader who makes decisions solely on setups without giving much thought to the bigger picture. This resulted with largely hit or miss trades without any real consistency. It really is all about context. I’ve come to think that setups are like tools in our toolbox. Just like a carpenter, different situations (market conditions) require different tools (setups) if one wants to be productive. I mean, if you were a carpenter you wouldn’t use a hammer to cut wooden boards. You’d use a saw. Similarly, if the market is strong and trending, then it would make sense to trade with some sort of trend-following setup on strong stocks instead of trying to fade upmoves 🙂

    Also, correct me if I’m wrong, but I think certain things in your circle will also carry more weight than others at certain times. For me, as an intraday trader, I’ve found that the tape seems to carry more weight early on the Open. I can have the most beautiful chart with all sorts of technical indicators aligning for a long setup, but if the tape looks really weak and butt-ugly, then chances are that long trade is not going to work. After 10:30 AM or so, technicals and charts start to carry more weight then.

  2. Word. I too think the importance of various factors in the circle can change moment to moment. You may have contradictory information coming in at times like good fresh news versus a bearish tape reading. But when the planets align, so to speak, and multiple slices are giving buy or sell recommendations simultaneously you’re looking at a safer trade statistically.

    The big picture too is important because it keeps you from missing some critical market-changing element that could potentially undermine your trade. Despite this, we can see that occasionally one slice is compelling enough to overpower other numerous market-forces at work, as in this tape trade. Acting on the tape doesn’t necessarily mean forgetting about other market factors, but rather knowing them to be favorable to your trade or just not unfavorable enough to subvert the tape readings.

    I think certain slices are stressed by traders based on their experience and what’s worked for them in the past. Focusing on different types of information is probably one cause of style. So the act of looking at one’s circle can be productive, especially if it causes a trader to notice that something helpful is being left out.

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