Pink Line Rule for Breakout Trading — Full Breakdown & Transcript

[00:02] money than the pink line rule. We've all been there. We make mistakes and promise ourselves we won't make them again. We tell ourselves stuff like, "Okay, I'll just stop selling early and see no improvements to P&L." Well, duh. We

[00:17] aren't coming up with a solution to the problem. We're here to tell you that there is one mistake that is more subtle and more expensive than all the other and more expensive than all the other ones combined, and you can fix it today.

[00:29] The pink line rule is the cheat code that tells us exactly when to stay on the sidelines and when to strike. But here's the catch. The rule isn't absolute. There are very specific moments where it's okay to break the

[00:43] rule. In fact, it's encouraged. I'm excited to talk about this because it's been a game changer in my own trading. Welcome to the Trading Floor podcast Welcome to the Trading Floor podcast episode 8. I'm Tim Beldin. Here with me

[00:57] is Garrett Dryin and we have our guy Kurt behind the scenes making the magic happen. So Garrett, when did you start thinking about this rule? >> let's do it. >> We were trading Tesla and Tesla had

[01:12] developed a range. I can't remember the price level. I can't remember when this price level. I can't remember when this was. Um but it was in a pretty tight range and it was setting up for a breakout. And we were watching this

[01:25] thing every day because it was going to be a good breakout. Every day off the open it would run and it would run in a way that would like stand out from all the other stocks. So clearly exhibiting relative strength,

[01:40] looked at the tape and it was like doing that Tesla thing and it just it looked like it was going to go forever. And every single day I'm thinking in my mind like it's happening now because it looked like if this thing just keeps

[01:53] going, it's going to break out and that's going to be it, right? So every single morning I was chasing this thing off the open and then it would just stuff. It would just it would it wouldn't even get to the breakout level

[02:08] and it would just completely collapse and go all the way back to the lows. sometimes take the lows out and then hold somewhere and gather itself. Like by then I was stopped out. I'd already lost money. But

[02:22] and I was doing this over and over and over until finally it broke out and you you know you look back and you're like man like I just burned like so much of

[02:34] my P&L I probably ended up just breaking even on like the whole idea. And so you and I were talking about this and it's funny because we talk about the pink line rule, right? That's what we're talking about today.

[02:49] This is a really great rule for for new traders, for beginning traders, but at the same time, like I've seen so many experienced traders mess this up. And of course, like I have too. I'm telling the story. And so I think this is also a

[03:04] really great reminder for experienced traders and also just to kind of take a look at the whole methodology behind this pink line roll. So would you like this pink line roll. So would you like to gain the biggest edge a retail trader

[03:16] can get? All of our daily and weekly in-house trader meetings are now available to you. Just head over to smbtrainingfloor.com >> From that experience, Tim, like what did we decide to do? So, we decided to stop

[03:33] taking trades below the pink line. Make the line as pink and as bold as possible because in those Tesla trades, I was taking them with you. And when it finally breaks out, you're like, "What's different than the previous trades when

[03:48] they failed?" And the difference is it never got above the pink line, >> right? So, we what we did was we made I mean, everyone's got price levels on their chart. This is nothing new. Right? We made the line that it needs to

[04:02] get above in order to break out. Right? These are this is the most significant level. We just made it as bold as we possibly could on the chart, as bright as we possibly could on the chart, and we created a methodology rules around

[04:17] this, right? So, like you're probably listening now and being like, like I got like I put lines on my chart, you know, like I like that's not rocket science. who cares, right? like what's the what's the big deal? Like why do we need to why

[04:31] do we need to even talk about this? Right? But it's amazing how many times traders mess this up because it is nuanced, right? It's not just as simple as like here's a line on the chart and we'll get we'll get into that, right?

[04:45] But like what would you say to that Tim? Like hey this is uh what's the big deal here? >> It might not seem like a big deal but it's not the line. It's like what the line does to your overall process where

[04:59] after we made those had those losses, made those mistakes in Tesla, we had the pink line rule now throughout our entire process and built a methodology and process around it. And not even that, like you get to the point where it's

[05:15] literally in your blood. like we feel a certain way watching a stock below the breakout level and then when it's getting above the breakout level you getting above the breakout level you feel a different feeling and the

[05:29] important thing I would say it's like everyone could put these lines on the chart but one it can't just be a random resistance line it can't be you know intraday resistance this is the most important level like you're saying and

[05:45] don't just put the line on the chart you need to build the process around it. And honestly, yeah, it it feels like it's a part of me and a part of our us. part of me and a part of our us. >> Yeah. I mean, one thing that I think

[05:59] confuses so many traders, especially beginner traders, and I've been there beginner traders, and I've been there before, is that whole idea of like you're not supposed to chase, you're not supposed to anticipate, you're supposed

[06:13] to wait. Like, well, what am I supposed to do, right? like you know a big we get a big move and then it goes and breaks out and it's like great you could have just bought that right but then you get a big move and you buy it and it totally

[06:27] fails and then someone like over your shoulders like don't chase like you chase that right so it's like are we supposed to buy strength or we or not right I hear that all the time like

[06:40] don't be a chaser right but and don't anticipate >> Don't be late. Yeah, don't be late. Don't be early. Right. So, it's like, well, I guess I'll just not trade. So, I this pink line rule kind of answers all

[06:53] of those questions like the methodology behind that for our trading because I interesting is that it's like there's a whole set of rules for when it's below the pink line and then there's a whole set of rules for when it's above. And

[07:08] just simplifies things. It makes it obvious because like how would you say comes into this because I think that's really the thing that can mess us up

[07:20] do as traders like I don't care what level you're at right you're buying a breakout you know what the breakout level is but then there are all these mistakes that we make right and those mistakes can come from uh deviating from

[07:34] what you know you should do because of the FOMO the fear of missing out of the trade right like the fear the fear of chasing all those types of things. So >> like how how how does this solve the

[07:48] psych the psychological aspect of breakout trading? >> Do you want to sit in on all of our daily and weekly in-house trader meetings? There's no bigger edge retail traders can get. Visit

[08:00] smbtradingfloor.com to learn more. It's funny when you're trading, you might not even notice how many mind games that you can play with yourself. And I remember right around this time when we started using this

[08:15] rule, I was looking at opening drives and you're telling yourself, okay, I'm going to wait for strength. And there's one way you can quantify strength is volume. So if you're just looking at volume right off the open, usually

[08:29] stocks have elevated volume. And on those Tesla days, I'd like to say it was those Tesla days, I'd like to say it was probably above 1.5 or two. So, you're attention to the breakout level. But back to your question with human

[08:42] psychology, it's hard saying this stock is strong, but I'm going to sit on my hands. It's super hard if you don't have a big bold line showing you that you're

[08:55] not missing anything below this point. And that's the big idea here where like it simplifies the mind games that you might play on yourself. You know, right off the open everything's moving and it's so easy to

[09:09] be like, okay, if I don't hit in Tesla right now, what if this rips 20 points without me and I miss this huge move? And then you start to realize after a lot of reps and building your entire process around it, I'm never going to

[09:23] miss anything below the pink line. All the fun happens above the breakout level and I could wait for that break, >> right? And it's like it's like what I looking for, you're not going to miss it. Or in other words, I think the

[09:37] you're looking for, >> um you're going to be patient. If you don't know what you're looking for, it's really really hard to be patient and it's really hard to overtrade. It's it's really easy to overtrade rather because

[09:52] choose your own adventure type of trading because you're kind of worried really sure. But if you have like clearly defined rules of what it the stock needs to do in order for you to get involved, then it's easy to wait. So

[10:08] you just said something that that caught my ear. I think it's a really good subtopic of this pink line because we want to get into the methodology, right? because that's really what it is. It's like this pink line is on our charts to

[10:22] remind us of this this full methodology that revolves around the pink line. So you are talking about the open. This is a this is a time of day where

[10:34] a lot of breakouts happen, right? And time of day matters, right? Like >> Why does time of day matter? Let's just start there and then we'll get into the open. So right off the bat, the first 10 minutes we like to say is price

[10:50] minutes we like to say is price discovery. There's a ton of fake outs. A lot of mean reversion happens within the first 10 minutes. But at the same point, that's where opening drives start. So some of the best trades and the

[11:03] strongest stocks that could trend on the day potentially will be strong off the open. I've noticed too, you have done a great job just in your entire career. I on a call with you all the time not getting enticed by that first 10 minutes

[11:20] really waiting for your pitch. >> Well, because I I think the open is where the most FOMO occurs. >> If you're a certain type of trader, if that's looking for big moves, looking for outlier situations, a lot of them

[11:35] happen right at the open. But if you go and look back at what normally happens off the open, that's not the normal way a stock acts off the open. If you want to trade a normal acting stock off the open, you're

[11:52] going to be like fading a big big down wick and you know a big up wick and of these moves because there's a lot of volatility on the open and there's a lot

[12:04] of price discovery and moves get stuffed and things come into like prior days support or prior days resistance and they get knocked back down and you can volatility and I know that there are a lot of scalpers that do that, right?

[12:20] That's that is a that is a strategy. >> Steve Spencer is a perfect example where he has certain scalp trades right off the open for those mean reversion plays during the first 10 minutes. >> But I think the key right there is

[12:34] >> Exactly. Because so if you're if you're looking for big moves off the open, big trends, like you have to know that that's the exception to the rule. So in order to trade that, like if you trade everyone, you're just going to get

[12:50] chopped up. So how do you clearly define what those trades are? And so getting back to like what you pointed out, which is that, you know, typically I'm patient is that, you know, typically I'm patient off the open is because my default mode

[13:05] is like not every up move is a buy and not every down move is a sell. like I'm not just going to start chasing moves off the open unless I have a really off the open unless I have a really specific reason to take this trade. Yes.

[13:20] specific reason to take this trade. Yes. And so the coming back to the pink line, a lot of these breakouts are going to be breaking out off the open. And sometimes stocks are going to look like they're going to break out off the open,

[13:35] but they're just in a range. And those are the ones that you really have to be careful of because stocks in range tend to I mean the definition of being in a range is a lot of price discovery, a lot of mean reversion, a lot of choppiness.

[13:48] And so being able to identify when a stock is still in that mode is really important because you're trying to look for the switch from going from a mean reverting choppy uh in a range

[14:04] acting stock to something that's now getting repriced. Right now it's in it's to the downside and there's more buyers than sellers and all that kind of stuff. And you see it on the tape, you see it on the volume, but the pink line

[14:19] matters. So, do do we have any charts? Because I I wanna I actually want to kind of like look at some of this stuff. Did we bring one of this Tesla trade? >> Yeah. All right. So, each one of these black lines is obviously a new day. And

[14:33] then the gray is the the after hours in the pre-market. So, we've got a big breakout level here. And I would say the last five days

[14:45] last five days as it came back up to this level, if you notice what happened off the open on all of those days, you know, it it ripped off the open. And it's hard to see on the chart that on the tape on a lower

[15:00] time frame chart during these points, it looked like the the strongest thing in the market. One of the things that catches my eye on this chart is that a lot of those moves that I was chasing were opens that open like at least like

[15:17] were opens that open like at least like half an ATR below the pink line. So when we see that strength off the open and it kind of gets up there, it's already spent a lot of energy. Like not only is it the open where we have

[15:32] price discovery, where we often have a lot of re mean reversion at resistance levels and support levels like I mentioned, but it's already gone like half an ATR to get there. What's different about the day that it broke

[15:45] out? So, it opened a lot closer. >> Yeah, it opens right at a lot closer. You say that all the time. You're like, if it's extended into the breakout level, I'm in no rush.

[15:58] >> That's the beauty of it. all the time. >> That's the beauty because it does like when you see that strength off the open like that and it runs half an ATR to get to that line. It doesn't mean it's not going to break out. But to me, I'm

[16:11] thinking, okay, it just spent a lot of energy. So now I actually get to see it. You know, I don't have to do the pay up off the open like you did when it eventually broke out here, right? Where it was actually set up for that because

[16:24] it was already opening at the line. was pressing against it after this little gap up. But on those other days, once it gets up there, like stocks need to consolidate and eventually. So like maybe it does go

[16:41] and eventually. So like maybe it does go through the line. So two points. One, if it does, it probably consolidates above it and you can see it hold, right? So there's a difference between paying through the level and waiting for it to

[16:55] And and there are two different situations where you might opt to do one or the other. There's probably many situations, but just to simplify it for me, like if it's opening right at the level and you are able to see it on the

[17:11] tape, break out right at the open where it hasn't already run like half an ATR. Like that's an instance where paying through the level can be a really good idea, especially if you see it on the tape. But if it already runs half an

[17:26] ATR, an ATR to get to the level, then I'm not trying to pay through the level because that might be it, right? Like you've already there's already been tons of buying. It's going to pull back

[17:39] eventually. It's a lot more dangerous. The riskreward isn't there. And because it's going to have to consolidate eventually, maybe you get to see it break the level and hold for a little bit. And that might be a break and then

[17:52] like a pullback. It might be a break and like a really good consolidation, but it step. But at least after you see something like that, it's held on the tape above the line. And so to my second point, I always say this, right, Tim?

[18:07] Like what are you giving up by waiting? And that's like a really good exercise Because a lot of times like emotionally and I've been there trillions of times like I I wish I hadn't but I have where

[18:21] you get to the level and you're like oh my god if I don't buy it now like it's going to go without me and then I'm not going to like you know in the back of your mind I don't know why like we think these crazy things as traders but it's

[18:35] almost like well if it if it breaks and I'm not already in it then I'm not going to be able to get in it or hell's going to break l you just play yeah you just play mind games where you're like, I need to be in this now. But if you look

[18:47] back, you realize what is it like 50 cents from the level, you're you're giving up if you're looking for like 10 20 points in the looking for like 10 20 points in the stock. What is giving up 50 cents to see

[19:02] if if it's actually going to hold the level, right? And you have to think about the riskreward. >> Exactly. And I I love when you say it because it's so true. Like if we were going to redo this Tesla, the Tesla

[19:15] going to redo this Tesla, the Tesla trades that we took, the level's at 235 and what you're getting at is make the stock prove that it could hold the level because it's running into it. So rather than having your fingers on the

[19:27] keyboard, it hits 23497, you're like, "Oo, jump the gun." You can just let it get above 235. either see it hold for a certain amount of time, you know, five, 10 minutes, 30 minutes, or another thing that we look at is wait

[19:43] for the offers to lift. You don't need to get it that 1 cent. If you wait until 236 and it held there for 10 minutes and then the offers at 236 lift, the win rate's so much higher.

[19:56] >> Yeah, absolutely. 100%. And like so so Tim when Tim when like when would you ignore this rule, >> right? Because like we're talking about how important it is to wait for the pink

[20:10] how important it is to wait for the pink line. But I know that even now like we have this methodology like I buy below it all the time. I still do. But there are times when to do that. And I think that that's like a really important

[20:26] differentiation. So like do you have times where you break this rule that you feel is part of the methodology that's actually acceptable? >> The nuances, but like you said, they're in the process and a lot of times you

[20:40] can't get a lot of information from the price action in the middle of ranges. The first one that comes to mind is catalysts. If there's a catalyst, a significant catalyst, you can see it on the tape, see it on the volume in the

[20:54] middle of range of the range, it sometimes is okay to then uh get sometimes is okay to then uh get involved. And why it's like that's a price action signal that you can interpret in the middle of the ranges

[21:08] and a lot of times it could be a game changer for the trade. So like what comes to mind too, we took that gold breakout. It was one of our um episodes we've already done and it was Jackson Hole. Um I think it was like August

[21:21] Hole. Um I think it was like August 22nd, maybe 22nd, but we get the shift 22nd, maybe 22nd, but we get the shift from Powell, the pivot and gold still in the middle of that huge weekly uh wedge. But that was a moment to me where you

[21:34] saw it on the tape, the volume confirmed it. You can get involved and that's in >> Okay. So hold on. So, if you're saying if it has a catalyst, you'll buy it in the middle of R the range. But are you saying that this is something that's

[21:48] still set up for a breakout, but you're anticipating the breakout, or are you just saying like you don't care where it is because it has a catalyst and it's a totally different play? Like, is this still a breakout trade?

[22:00] >> Yes. What I'm referring to is a breakout that you're eyeing and you have a pink that you're eyeing and you have a pink line higher and then a catalyst drops. you get breaking news and you are already looking for this trade

[22:12] >> and you can then anticipate it because you think that this volume will lead to the breakout and it's happening now. the breakout and it's happening now. >> The gold trade is it was a great example

[22:25] of that because it was actually near the bottom of the range when that catalyst hit >> after getting absolutely tight on the weekly and the daily chart. So, it was very ready. Um, and you were at the

[22:38] bottom of the range, which is even more interesting because it was almost like a like a support play within a tightening weekly consolidation that if worked, then would go and break out. And that's that's basically what happened. Another

[22:52] that's basically what happened. Another example that I can think of is when because I don't buy in like the pre-market that often, like trying to anticipate and like get that thirsty for these trades. You know what I'm saying?

[23:04] Like you don't Usually we're kind of waiting to see the tape off the open. >> SMCI on the pre-announcement in 2024, >> Yep. >> And if you go if you go look in the

[23:19] chart, it's it's had a stock split, but it was 360 then. Um that was one where it was below the pink line in the pre-market. They pre-announced earnings the night before and I thought there was a good reason to

[23:34] buy it the night before and then I was buying it in the pre-market on a big pullback in the pre-market because I was like this this catalyst is so big and it

[23:46] it's not even gapping up that much yet that like I mean this thing's going to be up today and if it's up today it's it's going to break that level and it was just a special moment where you're like how can I just get more and more

[23:58] like how can I just get more and more and more. Right? So that is a good example of when to ignore it. You're not ignoring the pink line. You're just kind things have changed and now we have a

[24:10] much understand the catalyst in those cases, right? What you're saying is, which is funny with SMCI, it didn't gap up that much. >> And if you didn't have the interpretation we had on the catalyst or

[24:25] like I was saying with gold, you don't see it in the volume. Stocks that have like so so catalysts in the middle of ranges are more prone to mean revert. So there's a that side of the coin too where you do need a reason that you

[24:40] think this time is different, this volume is different. >> But what would you say are other nuances cuz we do break the rule more than just catalysts. >> Here's a mindbending stat for you. SMB

[24:53] >> Here's a mindbending stat for you. SMB traders have 20x to 40x higher odds of success than independent traders. Find out why and how to greatly increase smbtradingfloor.com. >> Yeah. So, some technical things. Um,

[25:10] I mean, first of all, just really paying attention to how much energy attention to how much energy it has built up on various time frames. because like we already talked about what happens like on a lower time frame

[25:25] when it like runs off the open and it still hasn't broken out and it's you know over half an ATR up in the first 15 minutes and um you're basically chasing something below a breakout level. Um learn not to do that. You've got time.

[25:43] But what if what if it's been compressing super what if it's been compressing super tightly for a couple days tightly for a couple days in a very narrow range

[25:56] in a very narrow range and and holding up unusually >> It's a different >> if it breaks if it breaks that range a a

[26:08] a healthy move will get it through the level. Like in a case like that, like I'm not going to wait for the pink line. I'm going to play the break of that smaller range because it's built up energy. It's compressed. And in

[26:24] that case, like I feel more comfortable about anticipating a breakout because about anticipating a breakout because what's not happening is some chase below what's not happening is some chase below the level, like some energy expenditure

[26:37] when it hasn't even broken out yet. So, what does the compression usually look like for you? How many how many days? You're saying like two days? >> Any way you usually like to measure it? We don't need get in the weeds too much,

[26:50] but >> it it can vary. I mean, you know, I love the day and a half to two day consolidation. Um, but it just depends what time frame. I mean, you know, like your breakout level might be on a weekly

[27:03] chart. It might be on a, you know, 15 minute chart. like this this works on multiple time frames. So I would say like it doesn't even matter. The the key is that trying to answer the question, how much

[27:18] energy does this have pent up in its tank versus how much energy has it spent below the level, I think is a really good practice to to always keep tabs of

[27:31] that because like what we don't want to do is be chasing something that has spent a bunch of energy and it still hasn't broken out yet just because we >> Right. And that's like the biggest thing to guard against. But if it's if it's

[27:46] super compressed, um I would buy it. Another thing is taking things overnight, if you're swing trading, um there was a really great

[27:58] trading, um there was a really great Tesla breakout last year, which wasn't too long ago, probably midy year last year. Um >> you talking about the September one or >> Yeah. It was like the weekly breakout.

[28:10] Yeah. Um that is a that's a situation where I would buy I would anticipate >> and it it has >> for a few reasons. >> Um one the last point that I just made it had a

[28:25] really tight three-day range. Two it started exhibiting unbelievable relative strength. So all of a sudden it like was standing out like a sore thumb. It hadn't broken out yet. It wasn't above the pink line. But I'm I'm talking

[28:39] like I'm not talking relative strength like off the open for the first 10 before. >> You're talking the market was like selling off and Tesla was strong all day.

[28:51] >> Yeah, exactly. And I'm talking like the day before like it was just all day relatively strong and then you know like the next day, right? So, um, and I think it was in particular one day that was just fantastic. And

[29:06] it closed, it broke out of that mini range and it closed right at the pink line, like right below it. But because of the relative strength and because of the break of the mini range and because of the really good close, which is the

[29:19] point I wanted to make here, but this kind of had like all the reasons, it closed right at the highs after showing relative strength. That's the point I wanted to say is that when you get a really good close like that's meaningful

[29:32] sometimes that can foreshadow the odds of something happening the next day, right? That g that puts the odds in your favor that this thing is ready that this is ready to break the pink line tomorrow morning. Maybe it gaps up a

[29:47] little bit or or whatever, right? So you might start getting into some of your that close is so good and because the relative strength is so good. That's relative strength is so good. That's dramatically different to me than like

[30:00] chasing something off the open. Like the it's an unbelievable difference between the amount of confirmation and information like legit information that you have when you see a strong close versus like some spray off the open.

[30:16] It's legitimate checks in favor and reasons that you think this will lead to a pink line breakout just like the catalyst you're saying you have the relative strength the strong close and it allows you I like the word you use

[30:30] foreshadow that this could break out and the same thing with the compression it's like this tightness we think the energy is now built up where if it breaks this mini range it foreshadows a potential

[30:43] breakout of the pink time. >> Yeah, absolutely. And and and closes are meaningful and relative strength adds a lot of information. So, I like those two variables because, you know, a spray off the open can be smoke and mirrors. It's

[30:58] not a lot of information yet. Um, so that's a totally different situation to >> There's swing traders that just look at the daily, but the daily, but >> right, what what makes closes so much

[31:12] more significant? Well, you get to see by the end of the day that candle closes and you get to see the completion of um the consensus

[31:24] >> there's a there's a lot of noise. There's a lot of games being played. Market makers off the open, options being dealt, um options market makers, you know, there's a lot of participants in this market that are all doing like

[31:39] totally different things, right? There's there there's all kinds of stuff. So stocks can spray up and come back down. Like why did it do that? I don't know. But it might not have anything to do with like when this is going to break

[31:53] >> Exactly. >> A really good a really good close to me >> A really good a really good close to me has a lot more to do with when that is going to break out because it's you're getting a real read on what the

[32:07] consensus was that day. And institutions do buy on close. A lot more liquidity there too. So you do see that. >> Yeah, absolutely. And like I mean that's that's the whole picture. The day is done. We got to see like the buyers won.

[32:22] Like that's my point. The buyers won. They closed right at the highs, dead They closed right at the highs, dead highs. Um buyers won. We saw all the battles. We saw all the noise. You can call it noise. We call it battles. It's

[32:34] real. But it's like you've got all these these different things going on you got down moves and it's like by the end you get to see which team wins and that's why I think the closes carry um quite a bit of information.

[32:48] >> Dude, we're talking about the pink line. You remember when we took that or not I'm thinking of it as a trade. It was a no trade but the cues avoid where we were looking for this breakout. This was years ago, couple years ago or something

[33:04] breakout. And do you remember how pumped we were when we didn't take the trade because it never closed above the level, never broke the pink line? >> I think that I think we were more excited about not taking this trade than

[33:19] we'd ever been about a winning trade. >> I think I'd pump my fist in the air. >> Yeah, this was a huge victory. And and I I mean I'm sure a lot of people can relate where it's like you're working on something and you make a decision like

[33:31] something and you make a decision like that and all of that methodology pays off. Like that was right after we started talking about the pink line and laying out this methodology, right? Like how to think about it below the line,

[33:44] how to think about it above and when to anticipate, when not to. all these things off the open like everything we're talking about came together on this trade because the cues were rallying hard and we were looking at

[33:58] rallying hard and we were looking at this breakout level in the market and it was so strong that day like everything pointing strong right like internals breath many stocks were strong it just it looked in our eyes it was like how

[34:13] can you turn this around but it was late day it was like midday >> early afternoon. >> And this thing had already run probably >> And this thing had already run probably like like one ATR, like one daily range

[34:27] already just to get to the line. So, it looked like it was going to keep going. It looked like this thing was it was like the most bullish intraday look I've ever seen in terms of like where are any sellers? But it was still below the pink

[34:41] line. And we used that thought process of hey, we can afford to wait. Like we love this right now, but like really what are we >> We're not missing anything >> by waiting because it's not above and it

[34:55] >> by waiting because it's not above and it just ran like 10 points to get here and it's like the wrong time of the day for any kind of momentum. So, let's just see it hold. And in fact, better yet, let's see it close above there, you know,

[35:09] because it's the market. It's Yeah, >> it's a little different, but it's like we we can afford >> to continue to watch this thing. And I think it never got above there. >> Yeah. I forget if it failed, but like

[35:22] what's funny when I like remember it, it doesn't matter if it failed. The win was that day being a no trade. >> Yeah. I mean, I remember at some point turning to you like maybe the next day and being like, "Hey, good thing we

[35:35] didn't buy that." I think I think it gave back the whole move and whatever. I >> do you want to sit in on all of our daily and weekly in-house trader meetings? There's no bigger edge retail traders can get. Visit SMB

[35:48] tradingfloor.com to learn more. >> Kurt, you want to pull up um image number four? This isn't the trade we're talking about, but low key, it looks kind of similar to what Q's have been doing right now with that 630.

[36:01] >> Oh, yeah. Is that the Q's right now? >> Yeah, that's the cues right now. And like I mean we've been saying it for a while now where we've been stuck in the range. We've been seeing all these themes like you know space themes,

[36:15] drones have been hot. I mean silver silver going insane but the market has not been able to break out yet. And there's been a couple days where it's like today's the day and then it never closes above the level and then you back

[36:30] fill you pull back. And so far it's still just holding in like the upper percentile of this daily range. But I mean it's pretty good example of the pink line where you could have got in any day the previous like two weeks and

[36:45] if you just ask yourself what am I missing by just actually seeing a close what you're doing is saving yourself bandwidth and money. >> Yeah. And that mean I'm glad you brought this chart up because it's a great point

[37:00] because you just see a lot of noise in here and obviously like we're just as we trade and we're looking at the breadth and you know the amount of breakouts and and trying to get a feel for what kind of regime we're in and

[37:13] we're not necessarily trading the cues. But if I were, I mean, while we're But if I were, I mean, while we're talking about ranges, it's it's kind of relaxing to know that we can let all this noise occur and not

[37:26] have to deal with it, right? We can if we really love this breakout, you know, we're not necessarily talking about buying this breakout, but if we really line, but there's another side to that, right? Because stocks have ranges. So

[37:40] they they've got the resistance level and the support level. And if we're trading in a range, like no matter what we're doing, whether we're fading or buying a breakout, there's a lot more edge

[37:54] at the edges of the range than there are in the middle. So like if you like to um trade failed breakout breakouts or if you like to trade mean reversion setups

[38:09] like if you see a failure at that level then there's a lot more riskreward and a lot more edge to be able to read the price action around that level um than same thing with breakouts. So if you wanted to buy this I if you saw a failed

[38:25] breakdown at a significant level at the bottom of the range like that wouldn't necessarily be wrong because you're at one extreme and you're able to gain information at that extreme because did it fail or did it break and the

[38:40] riskreward is really good. I think that where we've gotten in trouble in the past, and I've seen so many people get in trouble in the past, is just when we're trading in the middle of a trading range and seeing strength and seeing

[38:54] weakness and kind of reading into it and like overtrading and like trying to go with it and trying to guess and you look back and it's just a lot of noise. >> 100%. Man, I'm glad you brought that up cuz even looking at this, like look all

[39:07] the way to the left. Like those were good failed breakout attempts at that 62950 level. But then if you're like around 610 612, which is like kind of the middle of the range, if you're then

[39:21] middle of the range, if you're then trying to play a failed breakdown there, it's a lot less edge. And you can see it then, you know, goes a lot lower, gets down to, let me look, what is that like? Yeah, less than 600. But what you're

[39:33] saying, it reminds me of uh last April. And I feel like this gets amplified when the market's in play and VIX is high. But it was right after we got the bounce day uh in the market and then we had that 90day tariff delay and those were

[39:50] that 90day tariff delay and those were huge ops and then Q's and SPY were then in a range for like the next week. And it was so easy to play mind games where you're like the market's in play. Like I did it too. the market's in play. All

[40:02] right, I'm gonna look for momentum trades. And then you start seeing like your win rate drop off and you're like, what's different than the overextension bounce? What's different than that breaking news 90-day tariff? And it's

[40:17] just a lot less edge inside of ranges, which is what you're getting at. range for like a week. >> Yeah. It was literally that one day from the 90-day delay. Yeah, such a such a big candle that I think like I was

[40:33] I'm getting I'm getting chopped up looking for momentum trying to try to >> Breakdowns was not >> I think I think I remember saying to you, dude, like we're still in that that one day range. It's it was like five

[40:46] in a row. >> Um yeah, and it's it's good to be aware >> Um yeah, and it's it's good to be aware of of of whether we're you're just trading inside a range or not. It's it's a huge simple part of trading that I

[41:00] think for for newer traders, it's like essential to be aware of all this stuff. And for experienced traders, you know, this um I think that sometimes it helps to revisit and kind of emphasize it, but like we've had to, right? Like in the

[41:15] past, we've kind of had to double down on this a few times, like realizing like how fundamental and how essential it is. I want to ask you a question. Yeah, I want to ask you a question. Yeah, >> maybe this is the final question. Um,

[41:31] grading the pink line. Are are all are all pink lines created equal or should we be grading them? >> I would say you should be grading them. And where the grades come into play, I would say, is the time frame where like

[41:48] for the most part, other than some of the nuances, so we'll like avoid the nuances we talked about with the range and like really compressed daily ranges. Like for the most part, a pink line is going to be on the daily

[42:02] for me. It's going to be on the weekly. It's a super significant level that I think if the stock gets above, new buyers are going to step in. So like it buyers are going to step in. So like it can't be a line on the five minute chart

[42:16] intraday. Like for the most part it's never going to be like a random intraday high for me. It has to be a level that like the nature of the stock should like the nature of the stock should change if we get above there on volume.

[42:31] >> Okay. So you don't think that that that same dynamic can happen on like a five minute chart? >> Yeah. Let's let's talk about this cuz there's some I would say it depends on the day cuz like we've

[42:48] looked we call them you know lower time frame breakouts and we have taken those high a day breaks and they've been pink line trades but for me what would make it different would be that it's a stock that's super in play that day.

[43:03] >> So it kind of gets into the like outlier versus normal >> yeah, >> what what would what are you saying? >> Yeah, I mean the re the re the reason I disagree with you is just because of of

[43:17] what you just said. So I think we're probably on the same page, but when a stock is very in play doing a lot of volume probably with a catalyst. Um those things can happen intraday like you can have a massive

[43:32] maybe a stock is selling off from being overextended and it's a complete unwind day and it cracks in the morning and then consol

[43:44] bounces a little bit consolidates goes sideways. It's still doing tons of volume. This is like the day one of the backside and it develops a really clean level at the lows and it breaks it at like, you know, 2:30 PM or something

[43:58] like that. There's a lot of noise inside that range during the bounce, during the retest and like at during that whole time, right? So, if you're too zoomed in trying to kind of anticipate a lot, you might get chopped up. You might think,

[44:14] "Oh my god, it's gonna go." and then you have to hit out and then you kind of get back in and but if you see that developing and you draw your pink line break. I mean that that can be a very very powerful trade. So I would I would

[44:28] say intraday for me you can still have like an A+ pink line >> in outlier scenarios that's the point. >> Let me turn it back on you. This will be

[44:42] kind of fun. Kurt, you want to pull up um SNDK uh image number one. What would um SNDK uh image number one. What would you grade this pink line?

[45:00] line? >> Let's do the entire situation like a B. Yeah, >> maybe B minus because it it's only like >> maybe B minus because it it's only like really tested it once and it wasn't in a

[45:16] weekly consolidation. This was really a daily consolidation, but it's really just a pivot high. Like it hasn't tested it a number of times. Like if we go back and look at like the Nvidia 500 breakout or the SMCI 360 breakout or the Tesla

[45:29] breakout that I was talking about earlier, like you not only have like multiple tests and every single test was done on high volume days that failed and then it gets really tight near the breakout level and breaks out like those

[45:44] breakout level and breaks out like those are A+ pink lines. This is really just a high. But what makes this so good is that it has unbelievable relative strength on the higher time frame. The whole market had a had a mini panic and

[45:59] this thing just held up and went sideways after running I don't know how many percentage points last year. >> Insane. So, so to me, like there was so

[46:11] >> Insane. So, so to me, like there was so much else about this trade that made this breakout appealing. And I don't think that the breakout level was play. >> It's like remove the ticker. We're not

[46:27] in this image, we're not even seeing what it did last year. And I completely line. Like it it would probably be a B or something like that. But then you put into what SNDK, what theme it's in. It's one of the hottest themes. Like you

[46:42] said, it made an insane move. Just consolidated, showing relative strength leader. Literally a market leader. Like it's proved that in this consolidation in that context does add. >> I I like I like how you answered. I

[46:56] think that was that's appropriate. >> Yeah. But you know, sometimes these these pink lines are huge, but this respected the level. I mean intraday it held I believe it held below the breakout level really tightly in the

[47:10] two? >> Like it failed from the breakout level the prior day. And what I thought was so interesting about this was that it was a failed breakout that didn't follow through. Right? So, like I was saying

[47:25] earlier, like you can play you can make trades around these pink lines because they're so significant. And you can see on that prior day, it like opens up there and immediately tanks, right? So, it it clearly like tested it and failed.

[47:39] A lot of times when these stocks test resistance levels like that and fail, they trade like all the way back into the middle of the range. This actually sideways the rest of the day and then

[47:54] kind of had like a like a nice little close there. So that's like the first more after failing at this level and all it did was go sideways and if we could see the previous day you'd see it was kind of like a little bull flag and then

[48:07] it starts to gap up and presses up against the pink line all morning ever since it looks like 4:00 a.m. on. >> Yeah. and got tighter and tighter and tighter and actually broke um right before the open and then it was just off

[48:22] to the races. So, this is like a perfect example to me for a reason to wait for the break and you're kind of seeing all of this price action leading up to it kind of telling you that like man this doesn't want to go down. Like it looked

[48:36] like it should have failed but it didn't and now this is pressing back up against the level. Um it's kind of telling you something. Would you would you agree? >> Yeah. And actually, that was just what happened with that Tesla example that

[48:48] happened with that Tesla example that sparked this whole pink line rule for us where it stopped going lower. It started holding up higher and really just pressing against that pink line. Like the first couple times it completely

[49:00] the first couple times it completely like retraced the entire opening drive and then it started holding up. So buyers are stepping in higher and the shorts, the sellers at the pink line are becoming weaker and weaker.

[49:13] >> Yeah. Yeah. And I think that the fact that it failed there the day before that it failed there the day before makes the trade better. Um, it totally that's gonna that's going to be something that's going to strengthen the

[49:26] about liking the higher time frames, which I agree. I mean those are those are massively powerful. So I I totally get your point. I just wanted to make the point that like within the intraday realm there are like A+ versions at

[49:40] least at least for me of these lines. But the higher time frame ones are are massively powerful. And the more it tests and the more events happen around those pink lines, the more significant they become because you have so many

[49:56] they become because you have so many participants starting to build up below this line in the level right in the stock. So you might have a range where every time it tests it, it fails and it does it on high volume. you go back and

[50:10] look at the Nvidia 500 breakout, you can see that every time it tested that 500 see that every time it tested that 500 level, that was a huge volume day. So, you've got people buying at the level and hitting out because they're like,

[50:23] stuffed. Um, you've got all kinds of participation around this level that's just building up pressure. Shorts that are going to have to hit out, longs, who got stuffed, who are going to want to get back in. Um, and it just creates

[50:38] more participants involved around that psychological level, the better in my opinion. So, Tim, this has been fun conversation. I know this has been a big topic for both of us. We've had pow-wows about this methodology. Um, I hope that

[50:55] listeners found this information useful, especially for those newer traders who are trying to create rules for their process. I think that this is a really simple methodology that is quite powerful for trading. So, we're on

[51:12] Spotify, so check us out there and we'll be back next week.