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The Only Opening Momentum Strategy I'd Trade — Transcript

by SMB Capital · 3,121 words · 450 segments · language en · Watch on YouTube

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0:00I was bad at opening drives. Every
0:03morning it was the same thing. A stock
0:05gaps up on news, the volume looks great,
0:08the bell rings, it starts to move, and
0:10I'd buy the first green candle, get
0:13faded, get stopped out, and then sit
0:15there and watch it run without me five
0:17minutes later. So, I stopped trading
0:20them for a long time. And I went and
0:23pulled 30 of the best opening drives I
0:26could find. I put them side by side and
0:29looked for what they all had in common
0:31before they moved. What I found is that
0:34this setup is a lot simpler than I was
0:37making it. There is one trade here, one,
0:41and it's the break of the pre-market
0:42high. Everything else, the gate, the
0:45filters, the exits, they're just there
0:48to keep you out of the bad versions of
0:50it and get you paid on the good ones.
0:52That's the video. one trigger, four
0:55filters, and three real trades where
0:57you'll watch the same exact model
1:00repeat. So, why do so many traders lose
1:03on this setup? Because they trade the
1:06gap instead of the break. Here's what
1:08that looks like. The stock gaps up on
1:11news, the bell rings, the first candle
1:13is green, and you buy it because it's
1:16moving, and you think that the catalyst
1:18is excellent. You don't want to miss it.
1:21You have FOMO. That is not a setup.
1:24That's a feeling. You have no level, no
1:27trigger, and no idea where you're wrong.
1:29And about 90 seconds later, the stock
1:31rolls over, takes your stop out, and
1:34then turns around and goes without you.
1:36I did that for a while. You know,
1:38sometimes you're right, sometimes you're
1:40wrong. You're basically just trading on
1:42intuition. The fix is boring and it is
1:46the entire trade really. You wait for a
1:49twominute candle to close above the
1:52pre-market high. That's the difference
1:54between the version that works and the
1:56version that stops you out. Not a better
1:58indicator, not a faster entry. You just
2:01wait for the level to actually break and
2:03you let the candle close before you
2:06believe it and put your money at risk.
2:08Because think about what the pre-market
2:10high on an inplay stock really is. It's
2:13the highest price anybody was willing to
2:16pay for that stock all morning while
2:18they had hours to sit there and think
2:20about it, look at the chart, and think
2:22about the catalyst. It's the level every
2:25serious buyer and seller has been
2:27staring at since they got to their desk.
2:29When the stock takes that level out on
2:32volume, that argument is settled. Until
2:35it does, you're guessing and trading
2:37inside of the pre-market range. Before
2:41you go looking for the trigger, there is
2:43a gate. It takes about 3 seconds.
2:46Four numbers. Prior close, where the
2:49stock finished yesterday. Yesterday's
2:52high, the pre-market high, the highest
2:55it traded before the bell, and the
2:58opening price, which is the very first
3:00print at 9:30. The gate is this. The
3:04opening price has to be above
3:06yesterday's high and above the prior
3:08close. both. Not one of those. If it
3:11opens below yesterday's high, this is
3:14not the setup. I don't care how good the
3:16news is, we're not buying it at the
3:18open. And the reason is just supply and
3:21demand. If a stock opens above
3:23yesterday's high, then every single
3:25person who bought it yesterday is green.
3:28There's no short-term buyers sitting
3:30there waiting to get out at break even.
3:33But if it opens below yesterday's high,
3:36you're buying into a crowd of people
3:38that might want their money back. And
3:40those people are exactly who's selling
3:42into your breakout. That takes about 3
3:45seconds and it's going to kill most of
3:48your bad opening drive trades. If it
3:50passes the gate, there's one trigger and
3:53it never changes.
3:55A long entry on a twominute candle
3:58closing above the pre-market high on
4:01volume. Two words in there that are
4:03doing all the work. Closed and volume.
4:06Closed means close. Not touched, not
4:08wicked through. If price pokes above
4:10that level, inch or bar, my finger is
4:12already on the button. But I sit on my
4:14hands
4:16until that candle finishes, completes,
4:19and closes. Most of the fake outs or
4:21what we like to call stuffs you have
4:24experienced in your trade happens in the
4:26middle of a candle as it's forming in
4:29volume. I want a real volume expansion,
4:33three standard deviations above what's
4:35normal for that time of day based off
4:38the last five days. And I've got that
4:40plotted on my volume pane on Thinker
4:43Swim. Or you could use plain old
4:46cumulative arval based on the last 5 or
4:4810 days. It's not going to make too much
4:50of a difference. And the arval must be
4:53over three. Price breaking a level is a
4:55claim. Volume is the evidence. Now, the
4:59trigger doesn't run on a clock.
5:01Sometimes the very first candle of the
5:02day takes out the pre-market high and
5:04you're in at 9:32. And to be fair, from
5:08what I've studied, that's really the
5:09best version. Sometimes it rides
5:12sideways for a few minutes first, and
5:14sometimes off the open, it sells off
5:16hard, flushes everyone out, and then
5:19quickly comes back and takes out that
5:21level just a few seconds or minutes
5:24later.
5:25I know those look and feel like three
5:28different trades. They are one trade and
5:32the trigger never changed. And one thing
5:35I have to be clear with you about
5:36because almost everybody teaching this
5:38glosses right over it. Um, you're not
5:41getting filled at the pre-market high.
5:44You're getting filled at the close of
5:46that candle that broke it. And that
5:49candle is usually big. And in real time,
5:52it could feel like a chase, which is
5:54what made this trade difficult for me to
5:57take at first. Look at this example. On
6:00Rocket Lab, the pre-market high was 8631
6:03and the stock opened at 8604, just 27
6:06cents apart. On paper, that looks like a
6:09dream riskreward scenario. But the
6:11candle that broke it closed at 8818.
6:14So my fill is $2 above the open, not 27.
6:19So, here's the lesson. When the
6:21pre-market high is sitting right on top
6:23of the open, that tells you the trigger
6:25is going to come fast. It does not tell
6:27you your stop will be tight. Size off
6:30your stop, never off the level. We'll
6:33touch on why this is important in the
6:35next section when we discuss the filters
6:38for this opening drive setup. Okay, we
6:40have four filters. These don't find the
6:43trade. The trigger does. These keep you
6:46out of the bad opening drives.
6:49Filter one, the wick. This one used to
6:53get me almost every time I took this
6:56trade, and I want to describe it exactly
6:59because if you've traded this setup, I
7:01guarantee you've lived this. Price comes
7:04up into the pre-market high, touches it,
7:07and pushes through. So, you buy it. Uh,
7:10and for about six seconds, you're green
7:12on the trade. Then the candle stuffs and
7:16closes back underneath. What looked like
7:18a great breakout in the moment turns out
7:21to have been the top right before the
7:24sellers unloaded. In half the damn time
7:27it felt like I was the last buyer in.
7:29That's a trap. And while it's happening,
7:32it looks identical to the real thing.
7:34That's the whole problem. In the middle
7:36of the candle, you cannot tell them
7:38apart. So stop trying to the close of
7:43the candle is the confirmation. That's
7:45the entire filter. Nothing that happens
7:48inside the candle as it's forming. The
7:51candle has to finish above the level.
7:53Then look at it when it closes. If the
7:56upper wick is bigger than half the body,
7:58skip it. If it closes red, skip it. And
8:01if it never actually closed above the
8:03level, it was a false breakout.
8:06A big upper wick means somebody sold
8:08into that breakout hard enough to shove
8:11price back down before the candle
8:13finished. That is not strength. That is
8:16somebody unloading into your enthusiasm.
8:19Wait for the close. Let the ones that
8:21fake you out ruin someone else's
8:23morning. Filter two, a fresh catalyst.
8:26real news that released in the
8:28pre-market or after the close of the
8:30previous session with heavy pre-market
8:33volume behind it. Or the stock is at a
8:36level so significant that the location
8:39itself is the catalyst, a price
8:42catalyst, such as an all-time high, the
8:46top of a long base on the daily chart.
8:48Filter three, there's room overhead, no
8:52obvious resistance within, say, 3 to 5%.
8:55If there's a wall sitting right above
8:57your entry or a little bit above it,
8:58you're likely buying into somebody
9:00else's exit. Filter four, a strong
9:04market, strong sector. This is so
9:07important. The market's daily chart has
9:09to be above its 20 and 10 simple moving
9:13average and ideally trending up. Not the
9:17stocks daily, the markets. That's the
9:20tape you're trading inside of and it
9:24decides whether momentum gets rewarded
9:26that morning or sold into. And really
9:28that goes for most breakouts.
9:32We want a strong market on the day
9:34itself. If SPY is red, I might pass. And
9:38the stock should be in a group that's
9:40moving at least as strong as the market,
9:42but ideally stronger. On a trade that
9:44lives and dies inside of 10 minutes, you
9:47want the overall market helping you, not
9:49fighting against you. Here at SMB, we
9:51call those market tailwinds. For risk
9:55management, I keep this simple. My stop
9:58goes under the low of the breakout
10:00candle. The breakout candle is the
10:02two-minute candle that closes above the
10:05pre-market high on volume. That candle
10:08is the trade. If price comes back and
10:10takes out the low of that candle, the
10:12breakout is not acting the way I need it
10:15to act. I do not want to sit there and
10:17start hoping it might come back after a
10:21false breakout. I'm just out at that
10:23point. And this is important. That stop
10:25is not always tiny. On the examples I'm
10:27going to show you, the risk is somewhere
10:29around two and a half to 5% per share.
10:33So, you cannot size this randomly. You
10:36have to know your stop first and then
10:37size the trade around that risk. That is
10:40so key. Once the trade starts working, I
10:43trim it to strength. For targets, I'm
10:45usually using round numbers, prior
10:48resistance levels, or ATR. I'm not
10:51trying to predict the exact high. I'm
10:53just paying myself as the trade moves in
10:56my favor. It's a momentum trade. For the
10:59runner, I trail it using the first close
11:02under the 9 EMA on a two-minute chart.
11:04There is also one failure signal before
11:06the stop. If a two-minute candle closes
11:09back below the pre-market high after the
11:11breakout, that is a problem. That is not
11:13what I'm looking for. The pre-market
11:15high was the whole trigger. The stock
11:17can't hold above that level after
11:18breaking it. Sometimes I don't need to
11:20wait for the stop and I'll exit a bit
11:22early. So, the management is simple.
11:25Stop under the breakout candle, trim
11:27into strength, trail the runner, and get
11:30out if the stock closes back below the
11:32pre-market high. All right, let's look
11:34at three examples. Rocket Lab May 8th
11:37earnings heavy pre-market volume.
11:40There's your catalyst gate prior close
11:437858. Yesterday's high 8479 and it opens
11:47at 8604 above both. So we have the green
11:51light. The pre-market high is 8631.
11:54The first twominute candle opens at
11:578604, dips to 8587
12:00and blows through the level and closes
12:02at 88
12:04on high arval on heavy volume. We have a
12:08real green body here in this candle. So
12:10the wick filter passes in at 8818 stop
12:15under that candle's low at 85.87
12:18risk $2.31
12:21about 2.5%.
12:23I trim into strength and I'm out by 10
12:26around
12:2798 $99. So about four and a half times
12:32my risk. Four and a half R. It kept
12:35going to 105 and that's fine. Um that's
12:38not my money and that's not this trade.
12:41ARM May 21st. No news at all. And that
12:45is the point. This one is an all-time
12:47high breakout. So the location is the
12:50catalyst. And look at the room overhead.
12:53There isn't any. Nobody in the history
12:55of this stock has ever paid more than
12:57this. Which means there is nobody
12:59waiting to get out at break even or sell
13:02into resistance. Gate prior close 25673.
13:08Yesterday's high 25944.
13:10It opens at 26690. It clears both
13:14pre-market high 268.49.
13:18The break candle opens at 266.990, dips
13:22to 266, closes at 27255.
13:25That's my fill. Stop under the candle
13:28low at 266. Risk 655
13:32about 2 and 1.5%. Extension at the time
13:35of my sell about 6%.
13:41And same plan, we're trimming into
13:43strength and it closes the day at 298.
13:45But I'm just worried about that opening
13:47momentum. That is the trade I'm looking
13:49for. Next, we're going to look at RGTI
13:53on May 22nd.
13:55Sector news. The Trump administration
13:57was reported to be awarding $2 billion
14:00to nine quantum companies through the
14:02chips act. Fresh and it lit up the
14:06entire quantum group, not just this one
14:09ticker. Gate prior close 2204.
14:13Yesterday's high 2210, opens at 2296,
14:17clears both of those. Pre-market high
14:202357.
14:22The break candle opens at 2296, dips to
14:262266, closes at 2380. I'm buying at
14:292380. Stop is 2266.
14:34Risk a$114. That's almost 5%. The widest
14:38stop by a mile. So this is the one that
14:41I would size the smallest. It's doing
14:45about four arvall and it's doing the
14:47most volume out of all these examples
14:49that we just touched on. Same plan.
14:52We're trimming into strength about an
14:54ATR from the open and into whole
14:57numbers. So we have three stocks, an
15:00earnings gap, an all-time high, and a
15:02sector news catalyst. Three completely
15:04different stories. same gate, same
15:07trigger, same stop, and the same exits.
15:11That's the whole point of running this
15:13mechanically. The story changes every
15:15single morning, but the trade does not.
15:18So, here's the whole setup. The trade is
15:20the pre-market highbreak, not the gap,
15:22not the news, not the first green candle
15:25at the open before the bell. I want a
15:27strong market, a strong sector, a real
15:30catalyst or strong technical catalyst
15:34such as an all-time high break. And
15:37there should be room overhead at 9:30.
15:40The first question is simple. Did the
15:42stock open above yesterday's high and
15:44above the prior close? If not, no
15:46opening drive trade. If yes, I mark the
15:49pre-market high and wait. The trigger is
15:52a two-minute candle. Closing above the
15:54pre-market high on volume. Not poking
15:57above it, not wicking through it, not in
16:00the middle of the candle. Closing above
16:02it.
16:04Then I check the candle. I want a full
16:06green body. No upper wick. If the candle
16:10looks like a rejection, I'm not going to
16:12chase it. My entry is the close of that
16:15candle. My stop is under the low of that
16:17candle. From there, I trim it to
16:20strength. often using ATR
16:22and I'll trail a runner using the first
16:26two-minute close under the 9 EMA. And if
16:29price closes back below that pre-market
16:31high quickly after I'm in the trade,
16:33I'll get out. That is the mechanical
16:35model for trading this setup. The reason
16:38I like it because it removes any
16:40guesswork from the fastest part of the
16:42day. I want to trade the fastest part of
16:45the day as mechanically as I could. I'm
16:48not trying to predict whether the stock
16:50is going to rip at 9:30 or close on
16:52highs at the end of the day. I'm waiting
16:54for one level, one close, one
16:56confirmation, and I'm being mechanical.
16:59If you remember one line from this
17:00video, remember this. The trade is the
17:02pre-market high break. Everything else
17:04is filters and management. Opening
17:06drives move fast. Paper trade the setup
17:10at first or size it small enough that
17:12being wrong feels boring. So, you're an
17:14active trader, not doing as well as you
17:17want, not doing as well as you deserve,
17:19and you just can't figure out why you
17:21can't become profitable no matter how
17:23hard you try. Well, let me show you why.
17:26This is your competition. The traders in
17:29this room, this room right here is full
17:31of elite traders, some of whom are
17:33making seven and even eight figures a
17:35year. In fact, our top guys have made
17:37nearly 20 million each in net trading
17:40profits in a single year. Let's head to
17:42my office so I can share more. So,
17:44you're probably used to seeing videos of
17:47lavish trader lifestyles, trading gurus
17:51trading off of a laptop for an hour a
17:52day, heck, maybe even 15 minutes a day,
17:55and then them relaxing on some secluded
17:58beach for the rest of the day. Well, all
18:01I can tell you is that our traders train
18:04like proathletes. They live and breathe
18:07the markets and are continually working
18:09on their trading skills. Because at our
18:11firm, that's what we found it really
18:14takes to make it in this game. I'm Mike
18:17Bellofury, co-founder and managing
18:19partner of SMB Capital, one of the
18:20world's top proprietary trading firms
18:23located in Midtown Manhattan. And we're
18:25always looking for trading talent to
18:27hire and develop. And not just to trade
18:30inhouse on our desk, but also to trade
18:33from their own home entirely using our
18:36firm's capital. And we have numerous
18:39traders doing just that, allowing them
18:41to make upwards of seven figures trading
18:43the firm's capital without risking their
18:45own money. But to even get a shot at
18:47something like that, you need to have
18:50the right training. That's why we're
18:52doing a new free online presentation in
18:55which we share how you can get an
18:57interview with SMB to become an in-house
18:59or remote trader trading firm capital
19:02without risking yours and gaining access
19:04to all of our firm's coaching and
19:06resources. And the best part, you don't
19:09have to be a profitable trader yet. In
19:12fact, we prefer to mold profitable
19:15traders with our methods and our
19:17techniques. That's why we have just
19:19three simple criteria that can earn
19:22anyone an interview. We're looking for
19:24highly ambitious and determined traders
19:26who fit our culture first and foremost.
19:29So, if you believe that could be you,
19:32sign up for the free 1-hour online
19:34presentation by clicking the link that's
19:36in your top right corner of your screen
19:39now.

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