Bounce or Scalp: What's the Diff?

Focus: STRATEGIES

Michael Bellafiore Image Michael Bellafiore Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading

Veteran trader Mike Bellafiore of SMB Capital shows how you can tell whether a play is a bounce or a scalp and whether or not you should take the trade.

I received another great question from The PlayBook Webinar Series of last week on our second Day Trade in EDU. Here it is:

Just my opinion, but since the stock is coming from $20 or $22 the previous day, I think a lot of people would have tried to catch the bounce at 13.50 to 13.70 at 11 am. That play would have been good for almost a point. Then back at 13.50 at 12 o’clock, perhaps more people might have been inclined to think this as a double bottom and then got long again? The stock is coming from 22 dollars the day before and we are at 13.

How do you differentiate between this play at 11 o’clock whether this is a long play or a short play? There was money to be made both long and short but is there a percentage decline you are looking for that indicates this has more to fall, etc? I would think 22 to 13 many are thinking long. I did notice on the third day it opened up at 11 and then went up to almost 14.

My old trading mentors would just tell me to stay out of stocks like this because well, you are exposing yourself to a steamroller one way or the other. After a stock is down 41% (from 22 to 13), wouldn’t it be common sense to think that shorting it could expose one to a great squeeze or a major bounce?

Let’s repost the intraday chart of EDU to give a point of reference.

chart
Click to Enlarge

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