A stock gaps up on real news. The first move is down, fast and on light volume, into a key level. That's the give.
Don't buy it. Wait for a quiet range where sellers can't push it any lower, then buy the go when the tape turns, with
the stop under the low of the day.
A stock in play: a strong, fresh news catalyst (earnings, guidance, an upgrade), gapping on elevated relative volume.
The best ones are top of the scanner.
Before the bell, mark the premarket high, the open and the key level below: a daily breakout or a big round number.
Check that the gap fits the news. Too big a gap for the catalyst and nobody knows what to do with their position.
Bigger-picture buyers want to own a stock with news like this. The trade is giving them a place to step in.
2
The give
The first move is down. It's fast, it's aggressive and it won't lift: a −8 tape.
It's on light volume compared with the open. A fast move on insignificant volume isn't sustainable.
It runs into the key level. Profit taking can be the reason, but it doesn't have to be.
Don't buy the give. A give can keep on giving, and you don't know where it ends until it has.
3
The neutral range
The selling stops getting anywhere. Price chops in a tight range, 10 to 20 cents, on quiet volume.
Bids hold the bottom. Sellers can walk it down a few cents but can't stick it any lower.
The tape is neutral: buyers aren't in control, but sellers aren't either. There's nothing to do yet.
What you're watching for is a distinct change. If you can't see one, you're still on the give.
4
The go: buy the turn
The tape flips to +8: price clears the top of the range, the bid steps up above it, and big prints hit at or above the offer.
Volume has to show up on the break. No volume, no trade.
Buy the go. The stop is under the low of the day. A hard stop, no exceptions.
This is the right side of the V. You give up the low to buy a turn that's already happened.
5
Fight for price and press it
Once the turn is in, use every dip to fight for price. The first pullback that gets bought right back is the moment to be at full size.
Add above VWAP once buyers win the battle there, and only on really high volume. Without it, don't force the size.
The next step is back through the open price.
The best risk to reward is right after the turn. Every cent higher, the reward shrinks and there's no new edge.
6
Targets, then ride the trend
Targets: back through the open, the premarket high, then a measured move of half the RVOL times the ATR.
Sell into extensions, like a big candle into the high of day, not into pullbacks.
Hold the rest until the trend ends. A high-volume candle back through the open is a reason to get out.
It's a move-to-move trade. The targets are guides; the trend ending is the real exit.
The three checks
Before it's a trade, it needs all three. The DKNG trade had all three.
A stock in play
A very strong (or very weak) fresh news catalyst. Graded 8 out of 10 or better.
A key level
Something real to trade off: a daily breakout, a big round number, a level buyers already defended.
Elevated volume
Relative volume well above normal. It doesn't have to be crazy, but it has to be there.
What kills it
Any one of these and there's no trade, or a smaller one.
A weak catalyst
Without a real reason for bigger buyers to step in, there's nobody to buy the give from you.
Under 8/10: skip it.
A gap too big for the news
When the gap outruns the catalyst, holders don't know what to do and few people want to chase it.
Past about 20% without a 9.5–10 catalyst: be careful.
No distinct turn
The give never stops, or the range never resolves. Neutral tape isn't a reason to buy.
No change on the tape: no trade.
No volume on the go
A break of the range on thin volume isn't the buyers stepping in. The same goes for adding above VWAP.
No volume: no entry, or no add.
Reading the tape: −8, neutral, +8
This is mostly a tape and price action trade. The levels tell you where to look; the tape tells you when the give is over.
−8
The give
Sellers won't let it lift at all.
Price walks down fast, but on light volume.
Feels like it's going lower. You don't fight it.
0
The range
Bids hold at the same price over and over.
Sellers press it a few cents lower and it pops right back.
A 10 to 20 cent range. Nothing to do.
+8
The go
The bid steps up above the range and stays there.
Size on the bid, big prints at or above the offer.
Volume picks up on the break. Now you're long.
A hold on the bid
The same bid gets hit again and again and doesn't move. Someone is absorbing everything sellers have.
A finishing print
A big offer steps down at the end of the flush and gets taken. Often an execution desk finishing a sell order, so the selling may be done.
Can't stick it
A last hard press looks like it will break the level, and it doesn't. In the DKNG trade price never traded back under 23.
Give or go? Two days, the same gap
Both days start with the same gap and the same flush. Only one of them ever turns. Buy the give and you own both days. Wait for the go
and you only own the one that works.
You'll sometimes buy the go and still get stuffed. That's what the hard stop under the low of day is for: take it off and leave
it alone. A failed go can even set up a good short. These two charts are illustrative.
How big a gap? A sliding scale
The size of the gap has to match the quality of the news. Super large gaps are harder to trade: nobody knows what to do with their position,
and fewer people are willing to chase. These are rough guides from the video, worth tracking with your own data.
~10%
A significant gap for an 8 out of 10 catalyst. Plenty of room for the give and the go.
~20%
A reasonable general ceiling. DKNG gapped about 16% on an 8 out of 10, which fits.
30%+
Too much for an 8 out of 10. Only a 9.5 or 10 catalyst, news that changes the company, can carry it.
Targets: half the RVOL times the ATR
The rough rule from the video: a stock trading at a given relative volume tends to move about half that many ATRs. It's more art than science,
and the bigger the RVOL the more it probably slides down from there.
2 RVOLabout 1 ATR
5 RVOLmaybe 2.5 ATRs
20 RVOLmaybe 10, likely less
Stopa cent under the low
Be biggest on the first entry
The coach's main note on the DKNG trade: the whole trade is the first entry. When the bid steps up, clears 23.40, tries to drop back
under it and the bid steps right back in, that's the moment. You're risking about 35 cents to make 60 or 70, plus maybe another dollar.
Don't over-manage it: too many entries, too many exits, getting bigger late.
As price climbs with no new information, the chance it keeps going stays about the same but the reward for the risk gets worse and
worse. The default numbers in the calculator are the walkthrough's, not DKNG's fills.
The trade in the video: DKNG, May 5, 2023
A trader's playbook review at SMB Capital. The market didn't matter much that day (SPY ranging); this was all about the stock's own news.
+16%
Gap up on earnings, elevated RVOL, top name on the scanner. An $11.5B company.
$770M
Revenue, up 84%. Guidance raised. Lost $0.51 a share against $0.84 expected: still not profitable, so an 8, not higher.
2.6 · 1.13
RVOL and ATR. Short float near 7%, low enough not to matter.
23.00
The key level: the daily breakout near 22.74 lined up with 23, where after-hours buying showed up. Above 52-week highs.
9–10Stock selection
10Trade strategy
9Reading the tape
8Trade management
93 / 100Overall
The bigger picture lined up too: a year of consolidation on the weekly, a clean breakout on the daily, the best performer
in its group year to date, and a wave of analyst upgrades after the call. The trader sold 20% into the high-of-day extension and the rest on a
high-volume candle back through the open. Next time: the same size, but bigger on the first entry, and an add on a clear higher low with the risk under it.
Long and short, side by side
The video trades the long. A gap down on clearly bad news works the same way, mirrored.
Longafter a gap up on good news
Shortafter a gap down on bad news
Catalyst
Very strong, fresh, 8/10 or better
Very weak, fresh, 8/10 or better
Levels
Premarket high, the open, key support below
Premarket low, the open, key resistance above
The give
A fast drop on light volume into support
A fast pop on light volume into resistance
The range
Neutral tape, a tight range on quiet volume, the push against the level can't stick
The go
Clears the range high on volume, bid steps up
Breaks the range low on volume, offer steps down
Stop
under the low of day
over the high of day
Add
Above VWAP on high volume; a higher low
Below VWAP on high volume; a lower high
Targets
The open, the premarket high, low + ½ RVOL × ATR
The open, the premarket low, high − ½ RVOL × ATR
Exit
Sell into extensions; the rest when the trend ends or a high-volume candle goes back through the open
Watch the video
An SMB Capital playbook review: a trader walks through this setup on DraftKings (DKNG), May 5, 2023, and gets graded on it.
You can be late to this trade and still make a really good trade. Fighting for the low puts you on the wrong side of the V. Waiting for the
turn puts you on the right side, with a clear stop under the low of day.
All three checks: a stock in play, a key level, elevated volume.
No turn on the tape, no trade. No volume on the break, no trade.
Be biggest at the first entry, then manage less, not more.
From an SMB Capital playbook review video (DKNG, May 5, 2023). The DKNG figures are as reported in the video. The walkthrough,
the two charts and the calculator's default numbers are illustrative, not a real ticker.