Playbook: 7 steps, by which any trade/setup is worked over

Sellers tried to ‘push the price through’ three times in our example at the trading session’s low but failed.

Step 4. Reading the Tape. It is difficult to explain in the written form how to read the Tape.

There are a number of instruments in ATAS, which help to work with the Tape:

• Smart Tape itself;
• Spread Tape;
• Smart DOM;
• indicators, which take information from the Smart Tape and highlight significant levels in the chart.

All these instruments make the work with the Smart Tape easier, because very many trades are executed and a trader can easily miss something.

For example, when working with the Tape, it is important to pay attention to the levels, which are held by limit orders. Entry into a trade at such levels has the minimum risk. We will consider an example of working with the Tape a bit further.

Step 5. Trading strategy for every setup is not a mandatory but very desirable stage. If every setup has its own clear trading strategy, it could be automated.

Step 6. Risk management and selection of a certain number of contracts. You can read about risk management in this article.

Step 7. Written review of a trade by a template. Analysis of trading by a template, carried out with a mentor or group.

Let’s analyse one SMB trading setup – Second Day Play. This is one of the most simple and efficient setups for traders of any training level.

It is clear from the name that trading takes place on days after publication of very negative or positive news for a certain instrument.

Trading doesn’t necessarily take place namely on the next day. The price could consolidate for some time after the trend and only then it could sharply move again. If the consolidation takes place the next day after the trend, it means that it makes sense to monitor the instrument and put alerts. The system will inform a trader with audio and video signals as soon as the price approaches significant levels.

If the instrument price changed by +/- 5% and was closed in the extreme point on the previous day, it is a good candidate for this setup.

To open a trade you need to identify beforehand:

• significant intraday levels of the first trading day;
• extreme points;
• levels, at which maximum volumes were traded.

If the instrument stays below or above one of the significant levels, you can work with it.

The global picture is important for this type of a trade, because, depending on the general market direction, you may trade more aggressively or with a bigger number of contracts/lots. If the market in general and trading setup in a specific instrument move in one direction, it creates more favourable opportunities for a trader.

Let’s consider the Apple stock example. The earnings per share report was published on July 30, 2020, after the trading session was closed. The report was much better than expectations of analysts. See Picture 3.

The next two trading sessions opened with an upper gap. We marked gap levels with red horizontal lines in the daily chart. See Picture 4.

In order to assess the global picture, let’s have a look at the ETF SPY chart, which completely repeats the S&P 500 index.

S&P 500 stayed in the growing trend and was traded above the significant support level. All losses, connected with the coronavirus crisis, were practically ‘erased’. We marked the previous historic high with the red line in the chart, while we used the black horizontal line to mark the mirror support/resistance level. See Picture 5.

Now we can move to the intraday technical and cluster analysis of the Apple stock in the 5-minute chart. We added the Spread Tape, Speed of Tape indicator and Volume Profile in the form of TPO.

The Speed of Tape indicator shows levels, at which the Smart Tape accelerated. Quite often, the trade acceleration takes place at the beginning of a trading session or if support/resistance levels are broken. You may judge by the Market Profile whether the market is in balance or in a focused movement. See Picture 6.

The July 31 trading session developed as a trend day – we can see a stretched profile, 4 single prints and Tape acceleration during the breakout of the Value Area High and on each single print.

Closing at the high also confirms confidence of buyers. The further price growth could be expected taking these signs into account.

The August 3 trading session again opened with the upper gap. A big sell, which we marked in the Tape, didn’t move the price down, which means that big limit buys hold this level.

If we look at the whole Spread Tape for the first 5 minutes, we can see many market sells, but the price continues to grow, which is a sign of strength. The price starts to consolidate and volumes fall after the first trading hour. But the gap doesn’t close, that is why we may expect an upward breakout after the consolidation period.

Mike Bellafiore believes that every trader can achieve success if he studies and keeps his PlayBook, but his way of development will be difficult and a profit will not come at once.

This is an approximate way of a trader’s development:

• Loss-making trades.
• Less loss-making trades.
• Breakeven at month-end.
• Small profit at month-end.
• Several profitable months in a row.
• Search for opportunities among especially successful trades.
• Trading only with selected setups and adding new profitable setups only after a stable profitability.
• Increasing the position size in the best trades in order to increase a general profit.

We hope that the PlayBook and trading and analytical ATAS platform will help you to pass initial stages and become a professional trader more quickly.