{"id":350,"date":"2009-02-03T22:45:35","date_gmt":"2009-02-04T03:45:35","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=350"},"modified":"2023-04-10T17:11:58","modified_gmt":"2023-04-10T21:11:58","slug":"from-the-mailbag","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/from-the-mailbag","title":{"rendered":"From the Mailbag"},"content":{"rendered":"

I received the email below today.\u00a0 Great question.\u00a0 I thought I would share.\u00a0 I am sure others who read SMB Blog have had the same question.\u00a0 So please read the email below and our response.<\/p>\n

EMAIL\u00a0<\/strong><\/p>\n

Hi Mike,<\/p>\n

I’m an equity trader at a hedge fund and read your SMB trading blog routinely and very much enjoy it.\u00a0\u00a0I’ve read your blog for a little under 9 months, and am curious how you factor in broader market moves into the stocks you trade (it seems like trades are very stock specific leaving out the ebb\/flow of the broader market).<\/p>\n

For example an example: stock XYZ has been very weak, topping out at 40.\u00a0 If the broad market is flat, the offer will hold and it’s a good short when considering risk\/reward.\u00a0 However, there is a sudden surge of strength in the overall mkt which causes the stock to move above the 40 level, albeit not a violently as the overall mkt.\u00a0\u00a0 In this case, would you a) still short the stock, hoping that the mkt will decline in your favor (whereas you could still lose money shorting an underperforming stock) or b) short the stock and buy Spiders to hedge, making money off of the relative performance spread?<\/p>\n

This question comes to mind as the\u00a0volatility levels in the market have grown exponentially.\u00a0 During less volatile times, specific levels hold fairly well.\u00a0 In this market, sudden momentum moves in\u00a0S&P futures can easily break\u00a0support\/resistance levels of individual stocks, leading to whipsaws that chip away\u00a0at PnL.\u00a0 Thanks for your time.<\/p>\n

Regards,
\n
\nJohn<\/span><\/p>\n

SMB Responds<\/strong><\/p>\n

First, SMB trades a unique style.\u00a0 We are short term traders.\u00a0 We look for Stocks in Play.\u00a0 We do so because they offer the best intraday risk\/reward opportunities for our trading style.\u00a0 Also, algorithms (trading programs) are unable to beat us when a stock has significant order flow.\u00a0 Second, there is more than one way to make money.\u00a0 But we believe that you should not pretend to be something you are not.\u00a0 We are experts in short term trading.\u00a0 We are experts in trading the Stocks in Play.\u00a0 So we stick with our expertise.\u00a0 Third, when a stock is in an intraday downtrend (“XYZ has been very weak”) we look for excellent risk\/reward opportunities to short the stock.\u00a0 We short weak stocks.\u00a0 We do not get long weak stocks that are in a downtrend save a few exceptions.\u00a0 So if XYZ is in a downtrend, and 40 is offering resistance, we will short.\u00a0 If the 40 offer lifts because the market is strong, then we may cover.\u00a0 If the XYZ cannot hold above 40, it’s still in a downtrend, and the market strength subsides, then we will short again.\u00a0 Fourth, we pay special attention to longer term support and resistance levels for the overall market. \u00a0 And we pay special attention to longer term support and resistance levels for the stocks we are trading.\u00a0 During our SMB AM Meeting we discuss these important levels.\u00a0 A significant support level for SPY may cause us to cover XYZ and get flat.\u00a0 A significant support level near in XYZ may cause us to cover XYZ and get flat.\u00a0 Finally, Steve hedges a little.<\/p>\n

SMB teaches<\/a> multiple trading plays.\u00a0 For range bound markets our traders have arrows in their quiver.\u00a0 For volatile markets our traders have arrows in their quiver.\u00a0 To trade the many different markets I have seen and we will all see going forward one must be a well-rounded trader.\u00a0 But we ought to all stick to what we are good at.\u00a0 We ought to all try and get better everyday.\u00a0 And we should all be grateful that we get to compete everyday doing what we love.<\/p>\n

Best of luck with your trading.<\/p>\n

\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

I received the email below today.\u00a0 Great question.\u00a0 I thought I would share.\u00a0 I am sure others who read SMB Blog have had the same question.\u00a0 So please read the email below and our response. EMAIL\u00a0 Hi Mike, I’m an equity trader at a hedge fund and read your SMB trading blog routinely and very much enjoy it.\u00a0\u00a0I’ve read your … Read More<\/a><\/p>\n","protected":false},"author":144,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[4676,30,18],"class_list":["post-350","post","type-post","status-publish","format-standard","hentry","category-mike-bellafiore-bellas-blogs","tag-day-trading","tag-prop-trading","tag-smb-capital","no-post-thumbnail"],"yoast_head":"\nFrom the Mailbag | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/from-the-mailbag\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"From the Mailbag | SMB Training\" \/>\n<meta property=\"og:description\" content=\"I received the email below today.\u00a0 Great question.\u00a0 I thought I would share.\u00a0 I am sure others who read SMB Blog have had the same question.\u00a0 So please read the email below and our response. 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