I ONLY Focus on These 2 Things In Trading
Hi all!
These are my notes of a video produced by SMB Capital on YouTube: YouTube Link.
I am not affiliate with them or receive any compensation. The sole purpose of this article is to learn from the best. I hope you enjoy.
Introduction
Mike Bellafiore, SMB Capital co-founder, “Two Things! That’s all that one of our most experienced prop traders focuses on to find profitable trades day in and day out. In this video, you’ll learn these two things in exact detail.”
Outside of risk management, there are only two things you need to focus on during the trading day
Catalysts
Setups
Catalysts
Definition: any event that brings volume to a stock. It’s what gets the stock moving.
Types of Catalysts:
An unusually good earnings report
Better or worse than expected guidance updates
A new product announcement
Move into a hot new sector
Collaboration with an established company
Favorable government regulatory announcements
New large contract
Cost cuts
Analyst upgrades
Macroeconomic news
Management changes
Dividend announcements
Significant legal or patent developments
Major shareholder changes
Breakthrough research or clinical trial results
Merger and acquisition news
Company restructuring announcements
Insider buying activity
A technical analysis catalyst such as a stock that is overextended to the upside or downside or a higher timeframe breakout
Setups
Definition: pattern or strategy we use intraday to execute our trade idea based on our understanding of the catalyst.
Types of Setups (some):
Back-through open
Opening range breakout / Opening range breakdown
Range expansion when tied together with RVOL.
Excellent to pair with a catalyst when range is tight off the open
Mean reversion from resistance
Mean reversion from support
Consolidation breakout (in direction of trend)
Consolidation breakdown (in direction of trend)
FRD (First Red Day) / FGD (First Green Day)
Targets overextended stocks that break prior day low / high for first time in a long time on the daily chart.
VWAP Continuation (strong trends after a healthy pullback to VWAP)
Blowoff Tops
Capitulation Bottoms
Gap & Go (opening drive)
Gape Give and Go (same as Gap & Go except pullback into a key level before the run)
Challenge
If your are thinking of a new pattern to trade, then I would challenge you to find 15 to 20 examples of that setup in action. Go back and study what all the best ones have in common.
Catalyst + Setup
“In trading the magic happens when combine a solid catalyst with the right setup.” - Justin Spero
Continue on with the video for examples!!!
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Disclaimer: This article contains the views, opinions, and recommendations of the author. Any information provided may not be relied on as investment, financial, legal, tax, regulatory, or any other type of advice.