Level 2 Strategies Every Day Trader MUST Know (Taught by a Prop Trader)

in this video learn level two strategies every day trader must know taught by a prop trader hi i'm mike bella fury co-founder of smb capital and we're a proprietary trading firm located in midtown manhattan and i'm also the author of the trading classic one good trade and the playbook let's get to work on sharing these important trading lessons so you can grow your trading account my name is ryan i'm a junior trader here at smb capital today i'm going to go over a way to scalp around your position build into a nice core size as a way to build up cash flow while you're looking to execute a larger larger idea trade so for example i'm going to show you a trade in apple the idea is apple had a really weak close the previous day had a strong gap up with the overall market and the idea is that i'm looking to build into a long position as the stock builds its opening range on the day looking to build some cash flow selling out into some upwicks building back into my position when it retraces back down eventually looking to solidify my core for a larger up move back towards the previous day's highs so the context for the trade is apple was trading roughly around 117 on the open and i'm expecting there would be some sort of pull back down towards 115 115 50. any type of down moves given the overall context of the market i'm going to be really interested in looking to try and buy into a core and given the fact that i'm not expecting us to have some really crazy opening drive to the upside just given the fact that we have to digest the previous day's move and we really need to see some actual strength come in to bring this stock off the lows and you also need to see some strength from the overall market coming in the queues for example until i see that i'm not going to be comfortable holding all of my size and that's when the strategy of reading the tape and using the tape to your advantage in order to scalp out and build up cash flow so that your overall risk and average price gets better that's when that really comes in handy right off the open we get a really quick move up to 117.76 and then a quick rejection down as soon as we start coming down into the 116 30 16 40 area i'm starting to initialize my position so i'm watching the tape here i'm seeing it to be a little bit heavy as it comes down towards 116. you can kind of see it stall then it re-bids back up towards the 30s i added one lot two lots kind of looking to hold maybe a two lot position but willing to get all the way up to five lots hasn't given up 116 yet just kind of stalling here the opening wick down added up to a third lot as it continues to hold into this 30 cent area and we're still kind of stalling here right so as i pause the video the biggest thing i'm thinking about here is i'm in three lots of my position i'm interested in getting potentially up to five lots and scaling out any move back up towards 117. if 116 drops i'm going to have to be really careful with the way i scale in to any further ads because there's a potential that we completely wick down underneath this pre-market consolidation we take out 115 and then i'm underwater trying to catch a falling knife on a day when you know if you look at the 15-minute chart apple's relatively weak hit a five-day low and now it's gapping up back into the range kind of the breakdown period from midday the previous day so i really need to be careful here i really need to make sure that if i think that the market and the queues and apple are going to bottom that opening drive or any type of retracement from an opening move lower i really need to be quick to scalp out my risk until i can build into a core where apple proves itself says it's going to stay up and then potentially we get that opening move higher if you want to learn three real world setups that our traders use including the simple setup that we teach all of our new traders and the setup that turned one of our traders into a seven figure big money earner check out the free webinar that we're currently running just go ahead and click the link that should be appearing right now at the top right hand corner of your screen that's going to open up this free registration page in the new window so don't worry you're not going to lose this video you're going to learn more in a couple of hours from this trading workshop than from years of online education so i'm watching 116 really carefully here holds nicely my average price is roughly at 41 cents now so it's a little higher than i would have liked would have liked to be closer to 20s but obviously the stock's moving very quick we get an interesting upside wick there i think that's a late print up at 118 but we did spike up to 117. it was too quick for me to take any profit i don't want to just hit the spread but now i'm starting to think okay any move back up towards 117 i'm going to be really interested in taking off some of my size so i'm layering out some offers to see whether or not it's going to get up there a little wick back down towards 116 but it's not breaking yet still digesting this little opening move lower you can see it's definitely very sticky around the 20 to 30 cent area and by sticky i mean when the stock comes down to that price it kind of sits there for maybe a half a second and then pushes back up towards the top of the range 50 60 cent area average price still 40 cents a little bit of size came in on the 40s and stock like apple i'm not really too interested in watching size get stacked on the offers unless it's some type of key technical level or a whole number so i'm still hanging in there add it up to another lot so now i'm in four lots total looking to scalp out probably one or two lots as we push up towards 117. so now i'm thinking if we break above like 60 cents i'm expecting to get that upside wick that can cover a little bit of my risk get about 60 cents very quickly into the 70s watching how it comes into 117 thinking it might possibly break but any quick failures here i'm definitely going to take off two lots took one lot off there kind of flicking around if we get back up into the 80s i'm thinking i'm just going to take off that other lot took it off right there so now i'm back into my 2 lock core average price 1 16 40 but i just took off 40 cents of risk so now if we drop 116 i'm in a little bit of a better position to potentially work that down essentially you can think about it as my average price is now 116 which is the area that i'm wondering if we drop out from there and we hold 115. i'm going to be scaling into that again so lo and behold we're still spending some time here i haven't touched it haven't touched it dips back into the 40s i put on another lot now i'm up to three lots again my average price is technically probably somewhere around 1 16 20 at this point but on paper my average price is 48 cents we've got to move back into the 80s layer out an offer not sure if this offer gets taken i move my offer down a little bit just because i can see kind of feel momentum slowing here you can see we're having a really hard time getting and holding above 80 cents which is kind of the top of this range you know you can think about this as being kind of a shelf right here kind of 117. no reason to add a momentum lot or add another lot and not take it out when you get 40 cents on it so now i'm still kind of hanging out my average price has moved up to 50 cents but that's okay because i've now taken three lots off for a 50 cent profit 40 to 50 profit and now i'm just waiting to see we got to break over 117 potentially i'll add a another momentum lot and if we flush 116 i'll have a trade decision to make i want to see how that flush happens i want to see where the cues are at that time and if that flush looks like something that's potentially viable i'll look to work into a five lap maximum again scaling out into any moves in my favor so we get the 116 flush move all the way down to 80 cents i haven't done anything yet i'm looking to see how this moves this move develops sorry i'll rewind that a little bit now any push towards 1 15 50 i'm going to slowly look to add some lots got up to a third lot right there so i'm using this entire base consolidation as a little bit of help a little bit of support as we flush lower i got another lot there in the 40s the ultimate stop on this is if this entire consolidation breaks i'm gonna take the loss i'll probably lose a point on it but if i lose a point on three four five lots and i made half a point on three lots you know the risk reward ends up being a little bit better than just taking a full stop on that entire full lot size usually in these situations if you take a full-size loss on those you're going to feel a little bit worse if you don't have any cash flow built up if you're developing and you're not yet there where you can read the tape and you're still trying to learn the way to flow with a stock my suggestion would be pick your niche whatever your niche is let's say you trade low floats let's say you trade the market let's say you trade high beta stocks pick one that you can get a feeling for that you have some some success with trade it on paper watch how the tape develops apple will very often dip down to these levels kind of take out little wick consolidations it kind of trades like spy in that way it's not going to hold levels very clearly you need to see how it behaves around those areas it'll very often re-bid after a wick out a little bit of a stop run you can kind of see it stop runs this area stop runs this area very quickly re-bids about 50 cents so at this point i'm in four lots i'm very close to adding my fifth lot and any move back above 116 i'm going to take that 50 to 60 cents back up towards my average price because of my core is from 116 two lots and i have five lots down now where i'm adding in the 50s the 40s the 60s of 115 tossing those out back above 116. i'm consistently moving my average price lower and lower and lower while also adding cash flow on these little wiggles so now i'm back up to full size all five lots any of these moves above 116 i'm going to take an opportunity to take some off we get a really nice retracement pop right up to the 1 16 30s and you could see me aggressively taking size off got literally all the way right back to my core because i just got a point on the scalp so now i have a point that i just made on three lots i've made 40 cents on three lots before so now you can do the math on that pretty easily i'm now basically i've made myself two points on a trade where the idea hasn't even played out yet the idea on this day is for this swing high from the previous day to be taken out and for us to potentially gap fill from that day before so on a scenario like that i'm targeting 119 i'm targeting 120 for spy or i'm sorry for apple and we literally haven't even moved out of the pre-market range but here i am already sitting in the money up about two points on two lots so effectively i've moved my average price all the way down to 114. you don't have to think about it that way you think about it as having cash flow still risk the right opportunities you know you don't want to say oh my my average price is 114 so i'm just going to take this all the way down if apple completely fails the stop on this trade is still 115 and you still have to be really careful with that so now that i'm sitting in my core the next trade decision is if if apple pulls back and we get a little bit of a move to the downside do we put in a higher low and what does a higher low look like so it was being a little bit aggressive here as it's holding this 1 16 30 area kind of the level where you saw me scaling in before but in my mind i know that if this drops 116 i'm going to have to puke potentially everything because i i'm also watching the cues i don't want the cues to fail from view at and i know i can always get back in and restart like i said i've already built up a decent amount of cash flow on the trade the idea is not invalidated unless 115 gets broken and i can always get back in so now i'm sitting in i actually got up to six lots on this one you kind of see we're we're still spending some time above 116 here 1 16 30s skip the head a little bit so as you see a really nice compression here there's two things that can happen we can either break to the upside and get to 160 117 or again i'm going to scale all the way back down to my core or we drop out 116 and i have to see whether or not we make a higher low that move can happen kind of violently and if it happens really violently i might just tell it all and reset and see if these bids step in so very quickly we get back into the 80s and the 70s i'm sitting in this position i'm all the way up to six lots so i have to be really careful here any move underneath like 60 or 70 cents i'm more than likely just gonna get out reset maybe be somewhere around flat on the overall idea but i'm still not sure about whether or not apple's really gonna have what it takes to make this larger context move that i'm interested in so i'm looking to be flexible i'm looking to be nimble i'm looking to stay involved in the trade so if this wick right here doesn't stay and we get some type of flush into the 50s i'm more than likely going to have to exit we get that flush i quickly get out i want to make sure the low of the day at 26 cents doesn't get taken out if it doesn't get taken out i can get back in they barely hold it there we start to re-bid get back into the 60s and 70s and now i'm reinitializing my position i'm about flat on the overall trade but i now i know the real risk is definitely 115. 115 gets taken out i think the trade idea is invalidated but now i have some levels to work against i've gotten a feel for the way that the tape's flowing i'm not necessarily just sitting flat-footed riding this down you know i still think the idea is valid so as we're kind of stalling here on the tape i worked up in back into a core so now i have a core from 64 cents the stop on the day is 115 about 60 risk on my on my core so any 40 50 increments i get on any ads i'm going to be quickly taking off so i'm all the way up to four lots now any wick above 116 i'm going to likely take we get the push back up towards 116. kind of the previous failure point of that consolidation is right here so any thrust up into the 20s i'm likely going to take off and get all the way back down to my core get the push here i want to see how it behaves all the way up to my fifth lot so now i'm watching really carefully here to make sure we're not getting some type of wedge breakdown i'm all the way up back into six lots here so if we do flush 50 cents i'm going to be really quick to get out i can't afford to watch this go all the way under 115 full size my average price is all the way down to 1 15 80 now so i'm still in the money 20 cents or so in a relatively decent spot any moves above 30 cents i think are gonna be great opportunities for me to scale out again six lots my core size is two lots if you know your core size ahead of time it's very easy to know when you're a little bit too heavy when you're a little bit too light and you can use those opportunities to take advantage of the way the tape is wiggling before you get some big momentum break nice move to 40 cents or so doing a good job holding this thinking we could potentially break this little swing high right here now i'm thinking one 1650 gets broken i'm going to try and scale all the way back down to my core two lots off right there previous failure point 117 a little bit of a psych level on the day down to three lots and on that 117 break i get down to my two lots so now i've worked my way into a core of 200 shares my price is 116 again i know the real stop on the day is now low of day 1 15 26 about 80 cent stop but i just got a point on four lots and i'm in a two lot size so you can make the argument why aren't you holding all of your size for the bigger move why are you getting being so quick in and out you know are you paying all these fees are you doing this or that the moral of story is the idea is never invalidated the idea that i can find better areas to risk against better areas to build into a very solid core and then let the stock work and capitalize on these wiggles by using my tape reading skills it's perfectly okay to just pick a level to risk off put your size on and size in but as you get a little bit more sophisticated with your tape reading abilities you can build up cash flow so that if you are wrong on a trade and the overall idea ends up stopping you out you could have still even made money on the process so like you saw when i got wicked underneath on six lots so i had six lots and i look we moved all the way back down to one fifteen sixty even on this move right here when i was in six lots i wasn't even down on the position i was probably pretty close to flat so my head was still in a great space when they made a higher low i was able to scale back in and then i very quickly got a point and a half on that move and established into a very nice core and then from there apple ends up just consolidating kind of wedging the rest of the session i was working my way in kind of doing the same thing you know stopping out when i didn't have enough or stopping out when i had too much and it went too far against me getting back in building into a solid core what you'll see ends up playing out this right here this compression this is a 15 minute chart throughout this entire compression i've been building in building in building in taking off and then we start to get a really nice sit sit sit sit sit you see before 15 30 45 an hour an hour 15 we stay in probably about a 50 cent band once that band breaks to the upside towards 119 you start to see apple curl up a little bit it's around one o'clock it's not the best time to think that you're going to really get some type of momentum break we barely stop out anyone short from the top of this wick from the previous session scale out into those moves you can kind of see this is all this is me very active very active scaling out very active very active this is everything you just saw in the video then we start to compress i buy a little more by a little more by a little more we get the momentum break that you guys saw i sell out into that and then just kind of ride it into the potential highs so again that's a great way to use your tape reading skills to build into a core get some cash flow to manage your risk properly and eventually have a really nice size position for a much larger move hey go ahead and click our subscribe button so you don't miss any of the videos they're producing for you and the trading community and please take the time to add your feedback in the comments section for what videos you'd like for us to produce next and what you found helpful from this video from all of us at smb train and trade well

Channel: SMB Capital

Views: 42,036

Rating: 4.8694267 out of 5

Keywords: stock market, day trading, smb capital, trading, investing, markets, wall street, stock trading, options trading, options income, economics, finance, level 2, tape reading level 2, level 2 order flow, order flow trading, appl, trading apple stock

Id: eSs023eJf4Q

Length: 23min 8sec (1388 seconds)

Published: Wed Sep 16 2020