---
title: 'The Prop Trading Formula: How to Grade Your Trades'
source: 'https://youtube.com/watch?v=hSunIc-qN3k'
video_id: 'hSunIc-qN3k'
date: 2026-08-10
duration_sec: 2676
---

# The Prop Trading Formula: How to Grade Your Trades

> Source: [The Prop Trading Formula: How to Grade Your Trades](https://youtube.com/watch?v=hSunIc-qN3k)

## Summary

In this video, Jeff Holden, head of trader development at SMB Capital, teaches a systematic method for grading trade setups before committing risk capital. The core framework is the Catalyst Value Equation (CVE), which scores how powerful a market-moving event is (magnitude) and how urgently institutions must reprice the stock (speed), then links those grades to position sizing rules. The video applies the system to five real stocks from the same trading morning to show why the size of a stock's move reveals almost nothing about the quality of the trade.

### Key Points

- **Quiet period expirations trigger simultaneous bank initiations** [00:48] — After an IPO, banks are legally barred from publishing research on the company. When the lockup coverage expires (roughly 25 days later), all banks, including Morgan Stanley and Barclays, release their coverage at the same moment — a coordinated buying-event catalyst.
- **Same stock, same information, different outcomes** [01:33] — Trader A saw CBRS up 13% pre-market, judged it 'too extended,' and passed. Trader B ran a quick check, graded the catalyst, sized the position, and made $6,000. The difference was a better decision filter, not a better strategy.
- **Profitable traders grade trades before sizing them** [02:15] — The single most consistent difference between traders who make money consistently and those who don't: profitable traders grade their setups before sizing, while struggling traders treat every trade the same way.
- **The emotional sequence is the problem** [03:22] — Most traders process a trade in the wrong order: a 2-second emotional read fires before the analytical brain arrives, then the brain rationalizes the decision after the fact. Psychologists call this confirmation bias — sizing based on excitement rather than trade quality.
- **The Catalyst Value Equation: CVE = magnitude × speed** [05:48] — CVE equals the change in perceived company value times the speed of the required repricing. It is not a valuation model; it only measures how big a shift just happened and how urgently market participants are forced to reprice.
- **Three types of catalysts** [07:14] — Fundamental catalysts change the actual business (earnings, FDA approvals, M&A). Technical catalysts change market structure (index additions, lockup expirations, options listings) and force institutional action on a timeline. Combination catalysts hit both at once — the rarest and most powerful.
- **Rating scale: No, Maybe, Yes, Absolute** [08:29] — For both magnitude and speed, score each variable: No (absent), Maybe (partial/unconfirmed), Yes (clearly present and meaningful), or Absolute (unquestionable, structural, forces big players to move). Absolute on speed requires a specific date or legal trigger that compels institutional action now.
- **The grading table decides risk allocation** [09:53] — Absolute × Absolute = A+ (80% of daily stop). Yes × Yes = A (30%). Yes × Maybe or Maybe × Yes = B (15%). Maybe × Maybe = C at most. A No on either variable = D (0%). This is exponential bet sizing.
- **Every trade starts at D** [11:02] — Every trade begins at zero risk; the catalyst must earn its way up to the table. The market does not owe a trade just because a stock is moving.
- **CBRS graded A (Yes × Yes)** [12:22] — Quiet period expiration with simultaneous buy initiations is a combination catalyst. Magnitude is a strong Yes — confirmation, not a structural surprise — so it doesn't reach Absolute. Speed is Yes but not a hard legal deadline. Result: A grade, 30% of daily stop.
- **MRVL graded A+ (Absolute × Absolute)** [15:35] — Adding Marvell to the S&P 500 means every passive fund must buy it with no discretion — magnitude is Absolute. The rebalancing date is a fixed, hard deadline — speed is Absolute. Result: A+, 80% of daily stop (subject to the setup trading well).
- **INTC: the trap that grades only A** [17:34] — Intel jumped 11–12% on a Reuters-reported, unnamed source claiming Google would manufacture 3M+ TPUs at Intel Foundry. There is no filing or press release, so magnitude is Yes with an asterisk, not Absolute. Speed is Yes but not forced. Result: A grade, 30% — not A+.
- **GLW confirmed deal graded B** [20:55] — Amazon announced a multi-year, multibillion-dollar Corning deal via formal press release, but Corning was already up 115% YTD after prior Meta and Nvidia deals. It confirms an existing thesis rather than creating surprise, so magnitude is Yes only. Speed is Maybe (multi-year agreement, no deadline). Result: B, 15%.
- **Apple graded D (No × No)** [24:00] — WWDC disappointed — incremental Siri and AI features instead of a transformative upgrade cycle. This was the absence of an expected positive, not a fresh negative catalyst. No magnitude, no forced speed. Result: D, 0% risk, do not trade.
- **An underwhelming anticipated catalyst is an expiration of hope** [26:32] — 'A catalyst you were anticipating that finally arrived and then underwhelmed is not a fresh catalyst. It's an expiration of hope. The CVE doesn't grade hope.'
- **The full sequence: three questions in order every time** [33:39] — One: score magnitude and speed (CVE grade = ceiling). Two: is the setup a named, clean, complete pattern with a specific entry? If partial, shade down one grade. Three: sector, market regime, relative volume, and price action — confirming variables stack the allocation.
- **CBRS concrete entry** [35:29] — The fashionably late trade triggered when the 9 EMA crossed back above VWAP at 9:44 after a flush down to 204. Entry at 214, risk $3/share (about a third of the range to the low, not the full low), 3:1 measured-move target up at 224.
- **Position sizing is pure math** [35:54] — Dollar risk = daily stop × allocation percentage. Shares = dollar risk ÷ (entry price − stop price). Daily stop = total account ÷ 50 (or ÷ 100 for beginners). With a $1,000 daily stop and an A grade, risk is $300 on CBRS, buying 100 shares.
- **Let the math do the work your psychology can't** [41:11] — Because the position was sized at A, not by emotion, the worst-case loss was $300 against a $1,000 daily stop, and the holding was easier to sustain. Sizing by grade makes it easier to hold winning trades, not losing ones.
- **The assignment before the market opens** [42:48] — Pick three watchlist stocks. Before looking at charts, run each through the CVE: how much did the catalyst change the company's worth, and how fast must the market act? Grade with No/Maybe/Yes/Absolute. If a catalyst doesn't earn at least Maybe on both variables, the stock stays a D regardless of the chart.

### Conclusion

The key takeaway is that movement is not a reason to trade; the catalyst must earn its grade before any money is risked. By replacing emotional sizing with the CVE scoring system, traders can consistently allocate risk only to setups that have structurally earned it, letting the math handle the psychology.

## Transcript

Monday morning. One passed on it, said it was too extended, right? The other it was too extended, right? The other graded it A, sized up, made $6,000 in 25 do with the strategy in it. Everything to do with a check that one of them knew
how to do, and the other one didn't. Here's what actually happened. This is uh Cerebras Systems, ticker CBRS. It's an AI chip company, IPO'd about 25 one of the hottest debuts of the year before SpaceX. It opened at 185, closed
the first day uh 311, then it did what fresh IPOs a lot of times do. It pulled back. It it gave back a chunk of those gains, and it ground lower for a few weeks. But then there was this Monday morning. And on this Monday morning,
initiations that hit the tape simultaneously. The post-IPO quiet period had just ended. After the IPO, the banks that took a company public are legally prohibited from publishing research on it. They can't say a word.
25 days later, the lockup coverage expires, and all the banks release their statements at the same moment. Morgan Stanley, Barclays, all of them, simultaneously. All of them saying buy. Now, that's not a normal analyst
fundamental reset. Now, here's the question I want you to sit with for the next 30 seconds. Trader A looks at CBRS Monday morning. The stock's already up 13% pre-market. He thinks, "I missed it. It's extended.
I'll sit this one out." Completely rational, right? Most people watching this video would probably have the same initial thought. But trader B looked at the exact same stock at the exact same time, and she ran through a
quick check, asked two questions, got a letter grade, calculated a position size, tracked the stock, saw fashionably late trade setting up as the morning shakeout flushed out those weak hands and then got in.
grand. Same stock, same information, same outcomes. Not because trader B had a better strategy, she had a better decision filter.
She had a grading system. I'm Jeff Holden. I'm the head of trader development at SMB Capital. We've been training professional traders here in New York for almost 20 years. And in that time, the single most consistent
difference I see between traders who make money consistently and traders who don't is this. The profitable traders grade their trades before they size them.
The ones who struggle treat every trade almost the exact same way this video, you're going to know the exact grading system I teach every trader on our floor. You're going to see it applied to five real examples, all
from that same Monday morning, June 8th, 2026. Including two that almost nobody scored correctly. once you have this system, you'll never look at position sizing the same way
again. So, let's go. Before I give you the system, I need to show you the problem that it's actually solving. Because the reason most traders can't grade their setups isn't laziness and it's not lack of information. It's
actually the sequence that they use. They do the steps in the wrong order. So, here's what happens in your brain when you see a trade. The stock's moving. You feel it, the pull, the energy of a fast-moving ticker. Your
brain makes a snap decision, in or out. In about two seconds. And it makes that decision based mostly on how the trade feels. Is the stock moving fast? Does the pattern look familiar? Did somebody in the chat
mention it, right? That's your emotional read. And it fires before your analytical brain even gets to the table. your brain makes that 2-second emotional decision, it immediately starts building
the case for why that decision was right. It goes looking for the news. It finds something. It calls it a catalyst. It rationalizes the entry. Psychologists call this confirmation
bias, but I just call it your brain lying to you. What that actually means in practice is most traders are sizing based on how excited they feel about a trade, not on how good the trade actually is. And those two things are
almost never the same. The trades that feel the most exciting, the ones your brain's screaming at you to get into, are often the ones with the worst risk, especially for developing traders. And those trades that feel
traders. And those trades that feel almost boring, almost too obvious, those are often your best ones. The grading system breaks that loop entirely. It just smashes it. It forces you to start from a specific anchor, the catalyst,
and work outward from there. Because excitement doesn't get a vote until the work is done. Here's the sequence that replaces the emotional one. Three questions in order, always.
Question one is the catalyst. Did something real and meaningful happen to create this opportunity? Question two is the setup. Is there a clean, identifiable pattern to trade? Question three,
the trade. Are the confirming variables stacked in your favor? The catalyst is just this foundation, right? The setup is the structure you build on it, and then the trade is the confirmation that you're ready to act.
All three have to earn their grade, and there's a mathematical framework for how you score the first one, the most important one, that I want to spend most of our time on today. It's called the catalyst value equation.
CVE, catalyst value equation, equals the change in the perceived company value times the speed of the required repricing. To put it in simpler terms, it's just magnitude times speed. Stop
the video. Write that down. Because we're going to build on it for the rest of the videos. There are two variables to this. How big is the shift in which the company is worth in the market's eyes? And how fast
shift? Before we go further, be clear on what this equation is not. It's not a valuation model. It's not trying to predict where the stock is in going to be in 6 months. It's not asking
whether the company is a good business. The CVE is only trying to identify one thing. The magnitude of the shift that just happened and how urgently market participants are being forced to reprice
from where they are right now. Because that urgency, that forced repricing, is what creates the tradeable opportunity. When magnitude is high and speed is high, you don't just have a trade. You have an event. And events are what A and
A+ setups are built on. Now, there are three types of catalysts. And here's something that surprises most developing traders. Catalysts aren't just news stories. They come in three distinct forms.
Fundamental catalysts change the actual business. Earnings beat, FDA approvals, new product launches, uh major customer wins, M&A announcements. These change what the company earns, what the company is worth. Technical catalysts change the
market structure around the stock. Index additions or removals, lockup expirations, options listing events. These don't change the business at all, but they force institutional participants to act in a specific way on
a specific timeline whether or not they want to. Combination catalysts are when both hit at once, a fresh fundamental event that also triggers a technical regime change. These are the rarest, but they're also
the most powerful. Now, the reason why we're talking about this before we score anything, most independent traders completely ignore it's not news about the business, it doesn't really matter. That's wrong, and
the five examples from this morning. Here is our scoring system, and it's Here is our scoring system, and it's super simple. Yes, maybe, no, and absolutely. Now, here's how you actually score the CVE in real time, because when
the market's moving, you don't have 30 minutes to think through it. For both variables, for magnitude and speed, you're asking a simple check with No. This factor is not absent. You're
not even there. It's a partial catalyst, right? Something is here, but it's incomplete, unconfirmed, or even mixed. Yes. This catalyst is clearly present
and meaningful. And then absolute. There's no ambiguity, there's no debate. This factor is unquestionable, it's structural, and it forces the market's hands. It forces big players to move around in their
positions. Absolute is the rating most traders never think to assign simply because it requires seeing something that's forced, not just probable. When something is absolute on magnitude, it means the perceived value of this
company structurally changed, and there's no reasonable argument against When something is absolute on speed, it specific date, a legal trigger, a structural mechanism that compels
institutional action now, not eventually, now, today. When you have absolute on both conviction catalyst that exists in trading. That typically becomes your A+.
That's the trade that if you're taking an A+ it earns 80% of your daily risk budget. Here's the full grading table for the CVE score. We're looking at the CVE score, the grade that we're giving it,
and the daily stop allocation that's going to correlate with that. Absolute * going to correlate with that. Absolute * absolute is A+. That gets 80% of your daily stop as the idea. It doesn't mean we enter right away, but we're
recognizing how our equation is working for us. Huge catalyst, absolute for us. Huge catalyst, absolute absolute, A+. 80% of your daily stop. If you can only give it a yes and a yes, that's an A grade. That only gets 30% of
your daily stop. That's exponential bet sizing at its core. sizing at its core. Yes * a maybe or maybe * a yes gives you Yes * a maybe or maybe * a yes gives you a B risk. That's 15% of your daily stop.
And maybe * maybe gets C risk at most. If there's a no on either variable, If there's a no on either variable, it's a D. 0%. We don't trade it.
Here's a critical rule to all of this, and I want you to write this down, too. and I want you to write this down, too. Every single trade starts at D. It starts at zero risk. The catalyst has to earn its way up to
the table. The market doesn't owe you a trade because the stock is moving. Now, let me show you this applied to five real trade ideas from the same Monday morning. We're talking about June 8th, 2026. Pull up some charts and take a
look. Because the CVE only makes sense news. And some of these things are actually And some of these things are actually going to surprise you. Comment CVE right
now in the chat if you've ever sized up a position because the stock was moving, not because of the actual catalyst. I want to see how many of you this idea lands with. All right, five stocks same Monday morning. Moves ranging from minus
Monday morning. Moves ranging from minus 4% to plus 13%. All five had news. All five showed up on the scanner. I'm going to run each one through the CVE. Magnitude and speed. We're going to score it and grade it. And I want you to
notice something as we go. The size of the move tells you almost nothing about the grade. That's the whole lesson. We're going to start with the CBRS example. This is a yes times yes, right? So it gets us to that A criteria. We
told the story on the open. Now let's actually score it. The catalyst was this post-IPO quiet period ending. Simultaneous initiations from multiple Wall Street banks, Morgan Stanley, Barclays, and others. All at a
buy, all on the same morning. It's a hot sector. the hottest trade of the year. This is a combination catalyst, fundamental and technical firing at once. Magnitude, yes. This isn't one analyst raising a
random price target. This is the entire sell-side covering the stock for the sell-side covering the stock for the first time simultaneously. Every institutional money manager who is waiting for research before writing a
ticket can now act. That's a meaningful and real shift in perceived value, but it does it reach absolute? Let's be honest. The company's story, a 24.6 billion backlog, a 20 billion-dollar
known at the IPO. The analyst initiations confirm the thesis. They validate it, but they don't structurally change it. Confirmation is yes, and actually the
Confirmation is yes, and actually the structural surprise is an absolute. So, this is a clear, strong yes on magnitude. Speed, yes. The quiet period magnitude. Speed, yes. The quiet period expired today. Coverage is live today.
really a little unsure because of the pullback before, are now looking at that same window right now. There's urgency. But, it's not a hard legal deadline like an index rebalancing date. Institutions can act today, or they can wait a couple
days. The repricing is happening fast, but it's not mechanically forced. So, on speed. CVE equals yes times yes. It's an A
CVE equals yes times yes. It's an A grade. This gets 30% of your daily stop. We're going to go through a couple more examples so you can follow along. And I know some of you watching this are thinking, wait, nine Wall Street banks
initiating simultaneously on an AI chip company off a post-IPO quiet period expiration? That doesn't feel like a simple A. It feels like more. But, here's the discipline the CVE
demands. The feeling of a trade is not the grade of the trade. The catalyst here is genuinely strong. That's why it's an A, and it's not a B. But, it doesn't have the structural
forced repricing mechanism of an index rebalancing. And it doesn't have the surprise validation quality of an uncontested first-ever customer win, or massive, massive customer increase. It's a strong catalyst, confirmed setup,
a strong catalyst, confirmed setup, right? It's an A grade. 30%, not 80%. That simple discipline applied consistently is exactly what separates traders who compound from trades from those who blow up on their
And we'll come back to the full-size trade. We'll give you the entry, the stop, the size after all the examples. So, hold on that. Second example is MRVL, Marvell Technology. This one really looks obvious, but it isn't,
right? Marvell Technology was up 8 and 1/2% the same Monday morning. The news was the Dow Jones Indices announced Marvell would be added to the S&P 500 effective a specific rebalancing date. I think it was the 18th, right? Most
straightforward. Stock gets added to the index. People have to buy it. accordingly. They call it an A, maybe even an A+ because of the size of the market cap. Here's the question that the CVE forces you to ask that most traders
skip. Is this absolute or is it just a yes? Magnitude is absolute. Every passive fund tracking the S&P 500 must now buy Marvell and add it, right? These fund managers have no discretion. This isn't
a decision, it's an obligation. The universe of forced buyers just expanded assets. The change in who must own this stock is structural and completely unambiguous.
But the speed it's kind of absolute, right? The rebalancing date's fixed. It's a hard deadline. Every fund has the same date. None of them can wait until after that rebalancing has occurred. This is not a
sometimes soon. This is a specific calendar date that creates a mechanical buying event regardless of what the market does between now and then. The CVE with that absolute plus absolute seems like it's an A+.
And it should be. But given the fact that it's further out in time, we have to be much more open to the setups and how they trade. Do you see how we're starting to use the three different opportunities interchangeably
We have this catalyst that we can walk into. It's absolute plus absolute. Let's get to example three though. INTC, right? This is the trap that's hidden inside of what sounds like a great story. Intel was up like 11 or 12%. It
The news was a report from The Information carried by Reuters. It says Foundry to manufacture more than 3 million TPUs for delivery in 2028.
Additionally, Nvidia's reportedly evaluating Intel's process for its next generation GPU architecture. Right? That feels like an absolute. You have two massive companies looking at this. It's Intel's Foundry thesis, the one the
market's been debating for 2 years. It's suddenly validated against the biggest names in AI. Your brain fires. It says, "Size up. A plus." But let's run the CVE honestly. Magnitude, yeah.
not there. And here's why it doesn't reach absolute. There's no filing. There's no press release from Intel. There's no press release from Google. The report comes from an unnamed source cited by The Information via Reuters,
And it's almost certainly real, but it's unverified. Neither company has filed anything with the SEC confirming a Foundry contract. The Nvidia piece is evaluation only. It's not an order. It's not a real
commitment. Is it probably going to play out? Yeah, but is it absolute? No. Source quality is part of magnitude scoring. A confirmed press release earns yes cleanly. An unnamed source report earns
yes, but with an asterisk. And that asterisk is exactly the And that asterisk is exactly the distance between an absolute and a yes. Was there speed on this catalyst? Yes. Foundry investors, semiconductor funds
Foundry investors, semiconductor funds need to update their models today. previous Thursday in a sector-wide sell-off. This is a snapback catalyst with real institutional urgency, but there's no hard deadline on this.
There's no forced action. Nobody's legally obligated to act by a specific Yes on speed, but again, it's not absolute. So, our CVE takes us to yes times yes. It's an A grade.
That only gets 30% of your daily stock. And this is the most important distinction in the whole video. Biggest mover of the morning, up 11 to 13%, 12% is A. It's not A+.
And you size it at 30%, not 80%. Now, CBRS and MRVL both move less than INTC on a percentage basis, but both kind of graded higher.
The scanner shows you the movement, but the CVE shows you exactly what's thing. And one more quick note on this, the unnamed source issue isn't just academic. Intel went up to close 11.2%.
sized Intel at 80% of their daily stock based on an unverified news report took A+ risk on an A catalyst. And that's a leak.
The trade working doesn't validate the size. The CVE grade validates the size before you know the outcome. All right, example four is GLW, right? Corningware. The confirmed deal that still got graded a B.
Corning was up between 5 and 9% in the same morning. The catalyst was Amazon announced a multi-year, multi-billion dollar agreement for Corning display, optical fiber, cable, and connectivity solutions for Amazon's expanding US data
centers. Formal press release, CEO quotes, specific jobs created, 1,000 new manufacturing positions at that their North Carolina facilities. This is a real, confirmed, announced deal from one
of the world's largest companies. But it only grades a B. confirmed, it's meaningful. Amazon joins Meta and Nvidia and Corning's hyperscaler roster, and Corning's optical communications
business just got another multi-billion dollar demand signal. Analysts will upgrade their models, but here's why it doesn't reach absolute, and this is the nuance that changes how you think about catalyst scoring
Corning coming into this morning was already up 115% year-to-date. The market had already been pricing in hyperscaler demand for optical fiber, right? The Meta deal, up to $6 billion, had been announced in January. The
Nvidia deal, $500 million commitment, had been announced in May. The Amazon deal is confirming, it's confirmation of an existing thesis. It's not a structural surprise. It doesn't change what the market believes about
Corning's future. It just confirms what the market already believed. And that distinction, confirmation versus surprise, is that dividing line versus surprise, is that dividing line between yes and absolute on magnitude.
Speed? I mean, maybe, right? This is a multi-year supply agreement. There's no hard deadline. Nobody's forced to reprice Corning today versus next week. Institutions will digest it over days. I mean, it's it's really just a maybe on
speed. So, let's go to our CVE. So, let's go to our CVE. Yes times maybe. Well, that's a B grade. It only gets 15% of your daily stop. Now, compare Corning directly to Intel.
Both are AI infrastructure customer wins. Both announced on the same morning. Intel graded A, Corning graded B. Why? So, Intel's Google order, if it was confirmed, would be a surprise
validation of a contested thesis on a stock that had just been crushed. The market was debating whether Intel's foundry could win major companies. This report said yes, it could. It's got high surprise value. It's got high magnitude
change relative to prior expectation. Corning's Amazon deal is the third major hyperscaler deal of the year on a stock that's already up 115%. The market knew this was the direction. This just confirms the road. It doesn't open a new
one. It's the same deal category, but it's a different CVE. Because magnitude is always measured relative to what the market already expected. We're going to look at our fifth example now. We're moving quickly,
so you can always go back, but let's take a look. All right? Apple was down 3.6% that same Monday morning at the end of the day, right? The AI announcements disappointed. There was new Siri and Apple
intelligence features that were just gradual. They weren't transformative. The rollout was delayed, right? Beta later in the year, China and EU availability pushed out further, and advanced features limited only to newer
devices. The market had priced in a major AI upgrade cycle catalyst. And what it got was incremental. Does that have magnitude? No. And here's the precise reason. The WWDC is on the calendar every single year. The market
had already been building expectations for months. Analysts modeling an AI-driven iPhone upgrade super cycle. Institutional investors positioned ahead of the event. They were all there. And what happened at WWDC wasn't a
negative catalyst. It was the absence of an expected positive. The perceived value of Apple didn't structurally change downward, but it disappointed relative to hope. And here's the critical distinction.
And here's the critical distinction. The absence of the expected positive is catalyst. A negative catalyst would be like a surprise earnings miss or a regulatory action, a product failure nobody saw coming.
The WWDC disappointment was a known risk that materialized. It moved the stock, but the movement is not the same as a catalyst event that deserves a ton of your risk budget. Was there speed on this? No, nobody's being forced to
reprice Apple in the next 30 minutes. There's no hard deadline to this. There's no legal trigger. The institutions that were selling were reassessing the iPhone upgrade cycle model, and they'll continue to do so
the timeline. So, let's go to our C V No times no. Well, this is a degrade. Well, this is a degrade. It's zero risk. It's a do not trade.
The traders who shorted Apple hard on this catalyst, this degrade track catalyst, they were treating it like it was an A.
You can look at the chart and go, "Wow, that was a huge move and I really should have caught it." But it never matched the conviction that you needed to take advantage of that opportunity versus other opportunities.
The rule, and write this one down, a catalyst you were anticipating that finally arrived and then underwhelmed is not a fresh catalyst. It's an expiration of hope. The C V doesn't grade hope.
Here's the scorecard for all five on the same morning. So, we'll talk about the stock, the move, the magnitude, the speed, the CVE move, the magnitude, the speed, the CVE grade, and then the allocation. CBRS,
well, it was up 13%. Did it have magnitude? Yes. Did it have Did it have magnitude? Yes. Did it have speed? Yes. It was an A grade. 30% of a daily stop. Marvell, it was absolute and absolute A+. 80% of
a daily stop. Again, we have to get to the setup, though, to really get deep on this. INTC, it was up 11% or 12%. Yes. Yes. It's an A setup. It's worth 30%. GLW was up 5%. Yes. Maybe. That's a B
Apple, it was down, but no and no. So, that's a it was down, but no and no. So, that's a D grade. 0%. The CVE gets your grade on
the catalyst, but the catalyst is only that first question. two more things that determine whether you actually put size on the trade and what size. Together, all three lock in your final
We're talking about the difference between big A, the amount that you're willing to risk on the day in that ticker, and little A, the amount that you're willing to risk on that trade.
Your little A is a product of what your big A is. So, just because we're saying big A is. So, just because we're saying we're going to risk 30% on CBRS, or even risk up in some of the other ones, doesn't mean we're one shot all of
it. We still need the setup and the trade. Those are the second and stability. Now, here's how to think about this. The CVE is the foundation of every trade. It determines whether you're even in the
right neighborhood. But a strong catalyst on a chart that has no identifiable setup is still not a trade. It's an opportunity you can't act on yet. And a strong catalyst on a clean setup
in a terrible market regime is a trade that will fight you the whole entire way. Setup and trade are the second and third legs. They don't override the CVE, they actually refine it. And critically, they
can lower your grade, but they can rarely raise it. An absolute catalyst with a messy setup is a B. It's not an A+. Do you see how even with that good catalyst, we're bringing the score down because of the messy setup?
we essentially mean stuff where you can't really identify who's in control of the price action, or where they would need to step in to support it. A perfect need to step in to support it. A perfect setup on a no catalyst stock
rarely ever gets above a D. standard because there will be times that you will say, "Oh, I should have had that. I wish I would have had that.
that?" And the reality of the situation is that is trading and you have to let it go. The CVE will set the ceiling, and the setup and the trade will determine whether you reach it. The setup is our
second question. Is there a clean identifiable pattern to trade? This is your technical read, often made on the daily and the hourly. Is this a breakout of range, a continuation off a moving average, a failed breakdown, a trend day
pullback? And is the pattern actually set up properly, or is it kind of just there if you squint, right? Experienced traders have a word for setups that are kind of there if you squint. They call them B setups. Or or some people even
call them C setups. They don't ever call them A+ or A setups at all because they don't require you to squint if they're A or A+. They just jump right off the Here are three honest questions for the setup.
Is this a named setup in your playbook? Because if you can't name the pattern, if you're describing it as kind of like a breakout, but not exactly, that's a tell. The second one, is the pattern complete
you're entering before the setup is confirmed because you're afraid to miss it, that's how traders get faked out. A clean setup means the structure is there. And then the third one, is the entry
specific? Is the price level plus confirmation? Not when it looks like it's going, not when I feel good about it, but a defined condition. This price, this volume, this price action. How do we check if all the
confirming variables are stacked in our favor? This is where you have to develop your playbook, not for setups, just for setups, but for trades as well. Is the sector the stock belongs to, is it a hot or cold sector?
Right? Institutional money moves in sectors, not in individual names. A perfect catalyst in a clean setup in a cold sector means you're kind of swimming upstream. On CBRS that morning, the AI
the market. So, the wind's at your back, right? The market regime, is the overall market was it trendy or choppy? A trending tape in your direction adds conviction. A choppy, mean reverting tape kind of
argues for smaller size and tighter targets regardless of your catalyst grade. Now, June 8th had the Nasdaq recovering from brutal Thursday sell-off. I mean, semiconductor specifically were bouncing
hard. The semiconductor ETF was up 5% on the The semiconductor ETF was up 5% on the day. The context was strongly favorable. And then we come into relative volume. And relative volume can get really
confusing. But we just look at the volume, right? Volume is the tell for institutional participation. CBRS had pretty elevated volume pre-market. That's a check in our favor.
expanding volume after the open, particularly after the turn when we had that structural low put in and our first higher low setup was in play.
You have all three favorable. So, you can use your full CVE allocation as soon as the trade shows up. Now, the trade check doesn't give you a
new grade. It confirms or tempers the grade that the CVE already set. Do you see how that works? So, we have the CVE, we have the setup, and then we have the trade. The CVE gives us all the money we can
walk into the casino with. The setup and the trade give us how much of that money we're going to spend at any one table. All right. Here's the complete sequence for this. Three questions in order every
single time. One, we start with the CVE first, the magnitude and the speed. first, the magnitude and the speed. Score each absolute, yes, maybe, or no. your grading table. That's your ceiling. That's the most amount of money you'll
spend on that ticker today. Two, you go to the setup. Is it a named setup from your playbook? Is it clean? Is it complete? Is the entry when you get a trade specific? If it is, it's a full yes, you stay at your CVE
grade. If it's partial, you're going to shade down one grade. just going to wait. There's nothing to do. Now, this is the fun part. Three, this is the trade.
This is the third part. Do you have the sector, the market regime, the relative And then the price action. Do you actually have a price action trade that's in your playbook? In this case, we get an exceptionally
good-looking fashionably late. And if you have all three of those, and then you have clean price action, you get to take a full allocation. If you going to want to shade down. You're going to want to drop your little A,
your small allocation. And if you're working against you're going to want to pass. You're just going to want to wait. All right? Back to our CBRS example. The CVE was an A-grade ceiling. The setup
was that first higher low off of a positive catalyst. The trade was a fashionably late. Specifically when that 9 EMA crossed
Specifically when that 9 EMA crossed back above VWAP at 9:44 after that hard flush down to 204 in the morning shakeout, that's a name pattern on a specific entry trigger on volume expansion.
So, for our trade, we have a full yes. We can stay at A risk. 30% of your daily stop. Once you have your grade, your position size is actually just pure
math. It's no emotion. It's no guesswork. Dollar risk equals daily stop times allocation percentage, right? And if there's ever a question about daily stop, think about your total account size divided by 50.
If you're just starting out, take your total account size divided by 100. That's your daily stop. And then you notice our CVE keeps us away from risking close to that daily stop unless
it's the best of best opportunities. Our shares equals our dollar risk divided by our entry price minus our stop price. Where entry price minus stop price is the structural distance where the chart says you're
wrong. Not where your P&L anxiety says to get out. Where the structure says the trade has failed. Let's go all the way through this CBRS example for the fashionably late trade on the first higher low setup with an A
higher low setup with an A CVE score. Or a yes CVE score. Our entry is going to be right at I think it was 214. Right? Right when that 90 EMA crosses back above VWAP.
Now, are we going to give it to the low of the day? That would make sense, but the reality of the situation is and that's where a structural low was put But at this point we're trading a trade and not a setup.
So the trade tells us we can actually risk a third of that range. So 214 minus 204 or something right around there. Let's call it that. 214 around there. Let's call it that. 214 minus 204 gives us 10 points. We know
from trading the fashionably late trade that good fashionably late trades, you don't have to risk all the way down to the low. You can risk about a third of All right? So just for safety's sake, let's call it a $3 risk. The low of the
day is 204. So we're not putting our stop there. We're actually putting our stop $3 below our entry, which would put us down at like 211. Cuz if it fails, it's probably going all
range. How do we calculate our share size? We take our stop from our entry and we've just talked about that being three And let's just say we have a $1,000 daily stop. Well, we allocated a risk to
this setup, so $300. So we can buy 100 shares. Do you understand exactly how that math works? You know exactly how much you're risking and where you're risking to
before you ever take the trade. Now, your target for this is a measured this. So, the classic fashionably late allows
us to look for a measured move from the low of the day to the entry. So, we're naturally at a 3:1 risk reward. If we're risking $300 and we're looking for a 3:1, that would be $10 above our entry. Roughly, right? $9, $10, whatever
it is. That's up at 224. Okay? It gets there fast on increasing volume. This is the sort of situation where the trader that we were just talking about recognized this opportunity. She wasn't
much bigger stop than that. But, she recognized the opportunity and she was because she saw everything going right in this trade. Notice, she didn't have to do anything differently.
She just took the trade with the right CVE and the right setup and the right trade and then just recognized, oh, this is going to pay me a little bit more. She went to a trailing stop using a 21 EMA.
It's not a trade we talk about a bunch, but when you have a really good setup with a really good CVE score and a really good trade that starts playing out the same way, you can allow it to trail out using the
21 EMA. Even if you didn't trail the stop the way she did, even if you just held all the way to that initial measured move, the distance from the the entry to the low,
you would have captured nine or 10 points on 100 shares. When your daily stop is $1,000, that's a real This is exactly the sort of trading that we're looking
for and exactly the sort of trading that you want to size appropriately. The thing that's fascinating about this whole idea is once you start to build on this system, you'll find it easier to hold trades not
as they're going against you. Because we're all going to get stopped out, but as they're working for you. Because you'll have a little more conviction in the idea. You'll see that your scoring system creates this really
nice opportunity. Your worst-case loss in this entire trade was 300 bucks. And you walked into a thousand, or if you use that trailing stop, you basically got a little over 2,000 just on that thousand-dollar daily
stop, right? And because you sized it at A, not by emotion, it makes it easier to hold. The position was never threatening. You never knew your number. You You set your stop, right? And you let the trade run.
That's the math doing the work that your psychology can't do on its own. with. The CVE might sound complicated. It's not. It's two variables,
four ratings, A grade, A size, 5 seconds. But what it requires underneath, what makes it actually hard, is the willingness to let a trade stay at D when the scanner is lighting up and
you seems to be getting in. You look at that June 8th scorecard again. Apple moved, but it was a D. Most traders watching the open that morning or watching after that event had
an opinion on it. I mean, some even shorted it. Some others bought it based on the idea that it was overdone, right? Neither of them had the right catalyst. They had a reaction. And reactions built on degrade events don't compound over
time. They are leaks. The hardest moment in trading is never the loss. It's actually passing on the D grade trade that moves against you Your brain will tell you that you've made a mistake. The CVE will tell you
the truth. The catalyst didn't earn the risk. The outcome doesn't change the identity shift that separates professional traders from everybody else. Not smarter, not faster, not better charts, just this. They stop
letting movement be the reason. They made the catalyst the reason. And the catalyst has to earn it. One trader reacts to what's moving, the other allocates to what's earned. One of
them has a consistent edge, the other one's always surprised by their P&L. Decide which one you're going to be. Now, here's your assignment before the market opens tomorrow. Pick any three stocks on your watchlist.
Before you even look at the chart, run each one through the CVE. The two questions. Write them on a sticky note and put it right on your monitor. The first question, how much did this catalyst change what this company is
worth? Two, how fast does the market have to act on it? maybe, or no. You cross-reference that grade table. You cross-reference that grade table. You get your grade. Then and only then
will you look at the setup. Because if the catalyst doesn't earn at least maybe on both variables, the stock stays at a D, no matter how good the chart looks, no matter how fast it's moving. All right, now, here's the vote.
Of the five examples from June 8th, tell me in the comments which one surprised you the most. Was it CBRS after that move? Was it Marvell because the index inclusion?
That really got that absolute, but if we look at it, it took time to play out, right? Was it INTC? Was it the biggest mover on the day, but it only graded an A because the source was unverified? Was it GLW that confirmed Amazon deal
that graded B because it confirmed an existing thesis rather than creating a I mean, the most voted ones at the end of the week becomes the next full deep dive. We'll go into that catalyst type and only that type in complete detail.
Post your answer. I read every single one. We'll We'll see in the next one.