Rules for high conviction trades

During a daily review a developing trader tackled his system for re-entry with high conviction trades.

In his words on his high conviction IBB breakout trade, expressed with LABD:

(LABD) Was one of my larger picture ideas for the day. Was using this 3X leverage ETF to play the IBB breakout. IBB looked positioned for a breakout on the daily chart and have had experience trading this ETF in the past. Cheaper priced ETF so feel more comfortable sizing larger without the fear of being slipped. Goof liquidity and .01 cent spread. Was looking to swing this as long as IBB looked strong.

How was my execution?

Ended up flat on the idea after the IBB failed to hold above VWAP and looked weak around noon. The mistake I made here was not coming back to the idea after it reclaimed VWAP and ran into close. Initial entry was good and covered half into first move to pay for the trade.

@MikeBellafiore

With high conviction trades you may want to give them more room.  You see the upside potential in the trade, thus more downside is warranted.

You do want to re-enter a LABD more often after exit or being stopped out.  Since your conviction level is high, this idea is worth more risk.

And you do want to give the trade more tries than other setups.  For a high conviction trade you might give the idea 3-5 tries as compared to a few with other opportunities.

I particularly like developing rules and setting alerts for re-enter.  Here Trader after exiting ought to set an alert for if LABD reclaims VWAP.  Trader ought to have a trading rule with his high conviction trades to re-enter if LABD reclaims VWAP.

We miss these trades mostly because we do not develop re-enter rules and set alerts.  Rules and alerts are our solutions to improve on re-entry for high conviction trades.

As always, your feedback/questions/comments are welcome at mbellafiore@smbcap.com.

*no relevant positions


SMB Training Blog

Sometimes the best trades just come to you

Sometimes the best trades just come to you.

Today was a perfect example in SUPN.  During our 11AM mentoring session with our new class, we discussed this important trading lesson.

Yes! we need to prepare before the open. Yes! we want to develop theses for trades. Yes! stock selection best for you is important before the market opens.

But we do not want to feel pressure to have to predict the best trades before the open. We do not want to feel pressure to have to pick the best stocks before the open. We do not want to feel pressure to be clairvoyant about the next trading session.

Trades will come to us if we sit in our seat.  Sometimes the best trades just come to us.

Today I was dickering around punching up a bunch of names:

NBRV

NVDA

NFLX

MRTX

SCS

BZUN

UBNT

KORS

EFX

APOG

ALDX

and then SUPN.

I noticed that it was down about 8 percent.  I noticed it was barely hanging on at the bottom of its opening range of 45.25.  I observed that it could not trade above 45.40.  And then the most important information of the trading session just came to me.  45.25 could not hold the offer.  Every time an offer stepped down to 45.25, it was cleared.

I developed a trading plan around this information that I could not have predicted before open.  I developed a simple trading plan.  I developed a good r/r trading plan.  Any of the new traders just starting could have traded this idea.

I shorted a small position at 45.25 to track the stock and developed a plan to add size if it traded below the bottom of the range.  My stops were above 45.40.  Nothing special here.  Just me bopping around looking for ideas and I found one.  Nothing special here.  Just me observing the market and developing a trade plan.

And then this happened after it dropped below the bottom of the range:

The stock just tanked!

This is a great lesson for us as traders: sometimes the best trades just come to us.

As always, I welcome your feedback/comments/questions at mbellafiore@smbcap.com.

*no relevant positions


SMB Training Blog

Emini Still Trades and Bounces within our Grid Sept 6

Our breakout beyond 2,470 was short-lived last week.  Now, we’re back within our grid.

Let’s chart today’s @ES Fibonacci Grid in play:

Emini @ES Intraday Trend Reversal

After the Labor Day holiday, shares plunged back toward our 2,448 Fibonacci Pivot and reversed powerfully up away from this level, closing back at the 2,458 Fibonacci Target.

At the moment, we’re back within the 2,458 and 2,470 price pivots as price rests between them.

There’s no special analysis or plan here – continue to trade the movement between these levels until we get above 2,480 (target 2,500) or beneath 2,420.

Until then, we’ll continue loving this range because it’s effective for our short-term trades.

Come join us to learn these tactics (beyond this simple/quick update) and have an evening game plan you can use effectively for the next trading day.

Afraid to Trade Premium Content and Membership

Follow along with members of the Afraid to Trade Premium Membership for real-time updates and additional trade planning.

Corey Rosenbloom, CMT

Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”


Afraid to Trade.com Blog