The Playbook: An Inside Look at How to Think Like a Professional Trader

by Mike Bellafiore

Fresh news provides potential real order flow into the stocks we are trading. Real order flow, in turn, increases the chances of a stock trending in the same direction cleanly (fewer or no shakeouts), which makes trading easier and more profitable.

Anytime you read that a company has increased its margins, stop what you’re doing (perhaps kiss your significant other on the cheek with a huge grin) and develop a plan to trade that stock. Margin improvement is a very powerful catalyst that sends stocks higher during earnings season. Essentially, the company is making more on the product it is selling, which, in turn, generally has a positive effect on the performance on the stock. Conversely, falling margins may cause a sharp decline in the price of stock

Upon the breaking news that a company is under investigation by a government body, most responsible traders sell first and ask questions later.

When a company raises guidance going forward, kiss your significant other again and start considering long positions

Traders’ expectations about a stock’s upside can be changed drastically with such news. When a company raises guidance in an earnings release, you can expect a possible outsized move to the upside. The market looks forward six to eight months, so a company’s guidance going forward is more important than the bottom-line number for the reported quarter.

Understand this distinction. Look for excellent risk/reward long opportunities.

If a company reports revenue much higher than the analysts’ consensus, this can also dramatically improve the psychology for a long position in the stock

This situation creates conditions for a powerful move to the upside. Reported revenue is more important than the bottom-line number. Revenue is the best gauge for how the core business of the company is doing. If a company sells widgets, we want to know how many widgets it is selling (the health of the core of the business) as opposed to whether the company got a one-time tax break on its property.

When a company’s market share increases, this shows that the business has an edge over others in its sector (see Figure 1.6). This behavior also can raise expectations about a company’s performance going forward, and as a result, the price of the stock should go higher.

stock +/– 3 percent with increased premarket volume is your cheat sheet for finding the Super Stocks In Play.

When a stock has gapped up or down during premarket hours with large amounts of relative volume, this provides important signals for how the stock

will trade once the market opens. Usually, these stocks proceed to mak...

Good traders use great tools to find the best stocks for them to trade, like our stock scanner, the SMB Radar.

The top three ideas that he presents during the morning meeting should be stocks that you pay close attention to intraday; they will usually be the best to trade.

The fact that the stock might spike is a reason to be in it.

When we consider Technical Analysis, we check long-term and short-term technical levels.

With our long-term technicals, we want to find the next big technical resistance or support level for the stock we are trading. If a stock is near such a level, this will affect our trading decision. For example, if we are considering a long but the stock is near a long-term important technical resistance level, we probably will pass on that trade, even if our other trade decision variables signal to buy. Why buy a stock so close to long-term technical resistance?

The Art and Science of Technical Analysis,

Top Ten Ways the PlayBook Can Help Your Trading

The best investors generate long-term returns by making rational, unemotional decisions. They do their homework and spend time and effort learning the basics. They are unemotional, intelligent, and patient. You can be as well.

The reason is each trader cannot make money in a setup unless he makes the trade his own.

We will offer you the ingredients for you to put together a PlayBook of trades that make the most sense to you, but you have to decide how much salt tastes good to you (in this case, that is, the right balance of the Big Picture, Technicals, Intraday Fundamentals, Reading the Tape, and your Intuition).

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Building your PlayBook will help you get bigger in your best positions. Trading coach Dr. Doug Hirschhorn offered in an interview at Trade2Win.com that most traders leave money on the table because they do not take on enough risk when the best opportunity is present

From your entire PlayBook, determine your A+ trades, the best of your best trades. For these setups, develop a rule of risk that you must take when you spot an A+ setup.

Remember that your job is to do the right thing. It is not to make as much money as you can with each trade.

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