One Good Trade: Inside the Highly Competitive World of Proprietary Trading: 454 (Wiley Trading)

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At the end of the chapter Mike Bellafiore provides a good tip: If trading is really your passion, then make a trading account and trade with small positions. That makes a big difference to an application, because it shows that you mean it seriously. But enough pontificating about corporate culture and human capitalphilosophy. Let’s move on to my entourage (especially when I am buyinglunch). The traders profiled in this chapter are damn good and getting bet-ter. You would be hard pressed to find any better in our space. Unlike indus-tries where young talent is groomed to look, act, and dress in a monotonousway, prop traders really come in all shapes and sizes. That alone has keptthings fresh throughout my career. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their bestefforts in preparing this book, they make no representations or warranties with respect to theaccuracy or completeness of the contents of this book and specifically disclaim any impliedwarranties of merchantability or fitness for a particular purpose. No warranty may be createdor extended by sales representatives or written sales materials. The advice and strategiescontained herein may not be suitable for your situation. You should consult with aprofessional where appropriate. Neither the publisher nor author shall be liable for any loss ofprofit or any other commercial damages, including but not limited to special, incidental,consequential, or other damages. In One Good Trade: Inside the Highly Competitive World of Proprietary Trading, author Mike Bellafiore shares the principles and techniques that have enabled him to navigate the most challenging of markets over the past twelve years. He explains how he has imparted those techniques to an elite desk of traders at the proprietary trading firm he co-founded. In doing so, he lifts the veil on the inner workings of his firm, shedding light on the challenges of prop trading and insight on why traders succeed or fail. So who are these people? Most were former Division I athletes or IvyLeague math whizzes. Some sit around conference tables sipping bottledwater, admiring the cufflinks on their French shirts, and stretching theirtoes in Gucci loafers while enjoying Central Park views from the window.(Not to be outclassed, as one can see the Statute of Liberty from some ofmy office’s windows). Many have more money to play with than we do, andcan push us around, not to mention more brain power, experience, and“research” information. They work at firms with names one would easilyrecognize. NBA superstar Kobe Bryant is known to fans simply as “Kobe”while his worthy counterpart LeBron James is simply “LeBron.” Similarly,fans of Wall Street might recognize my competitors with one name as well.

Being the best of the best on the desk was not a concern to Franchise.The guys are on desk were respectfully all unworthy of comparison as faras he was concerned. He was competing against the market. His goal wasto tame this powerful beast. Perhaps it was the naıvete of market youth.No one trader is bigger than the market. But this conversation summarizedhis thirst for excellence. The biggest reward of this job is the challenge to become an elite performer. I seek every day to improve, and I’ve been at this awhile. I do my best to master the psychology of trading. Traders learn more about themselves in a year of trading than many learn in their entire adult lives. The challenge is so intense it cannot help but force one to become the very best inside of him or her. Embracing the life of an elite performer eventually spills over to every facet of life like friend, brother, and son. Includes bibliographical references and index.ISBN 978-0-470-52940-9 (cloth); ISBN 9780470648971 (ebk); ISBN 9780470648988 (ebk);ISBN 9780470649008 (ebk) Thank you to the best trading coach I know, Dr. Brett Steenbarger,for encouraging me to write this book and helping me make it happen.You gifted me the idea for One Good Trade, which I may have never con-templated on my own. You have inspired me to become a better teacher,mentor, trader, author and person.The first level of the pyramid is to master the simplest trading setups. Trades in which you act on the basis of statistical advantages. This is about different time frames in daily trading. For example, you should set a daily limit, which can be half of the average earnings of a good day. In addition, the time of day is important because there aren’t as many opportunities to find good trade setups. At noon it is often quiet and trend-less while the open and just before the close have stronger movements and better trade setups. Some like the idea of simply being a trader. It seems cool to them…It’s as if it brings ultimate respectability in the eyes of their peers…Some would-be trainees envision the rich trader lifestyle that they will lead. And this dream can become a reality. But none of this will happen unless you are willing to pay the price. And some just are not willing to work hard. There is grunt work that needs to be done every single day. At the end of the day, your eyes are tired. Sometimes my eyes start twitching over the weekend from a week of staring at screens. My wrists constantly throb because of the excessive typing I do searching for the next great trade. I often have to stop trading and just rub my wrists to relieve the pain…Some just do not want to watch some more tape of their trading after the Close. This requires a serious commitment…There is so much to do before and after the Close. You will not do all of this work unless you love trading. You just won’t. The problem is that if you do not do all that the market requires, you will almost certainly fail. Steve has developed a reputation as one of the best short-term traders in the industry and has built a large audience through articles and videos published in The SMB Training Blog. His educational videos have been watched more than 200,000 times on YouTube. thinking to myself, “To what exactly do I owe this privilege? I run a year-old fledgling prop trading firm, and this kid wants to work for me?”

There is not a single trader on our desk, including myself, includingSteve, including GMan (you’ll meet him, too), who is as competitive asFranchise. Not one. In fact, there isn’t even a close second. Here’s why. First, I offered him some perspective. He was actually doing very well,and I made an argument that supported this conclusion. But then I recom-mended Franchise work on three short-term goals to improve his trading:(1) Enough with the trading “On Tilt”; (2) Improve your position sizing; (3)Refine your trading on the Open. We could sit in my office all day talkingabout these weaknesses, but that wouldn’t help him improve. So now hehad his tasks, and it was up to him to improve. Steve Spencer received his undergraduate degree from University of Pennsylvania, where he received a BS in Economics from The Wharton School of Business. He then received a JD from Fordham University School of Law while trading full time. He started his trading career with Heartland Securities in 1996. For the next seven years with the firm, he was one of the top traders because of his consistent profitability. In 2005, he co-founded SMB Capital, a proprietary trading firm located in New York City. SMB’s unique training program, which he helped create, is recognized in the financial industry for its “elite performance” training methodology. Consistently profitable traders constantly evaluate their trading system. They make adjustments every month, every day, and even intraday. I have substantially changed my trading system six times since I began. I have traded through the Asian Financial Crisis, tech boom, Internet Boom, bursting of the Internet bubble, 9/11, a range-bound market, and now the near collapse of the banking system. Every day is new. There is no ‘system’ to learn. It is about developing trading skills and then making adjustments continually. Also One Good Trade is a metaphor. Many trade a job boring to them for trading. I traded the law for trading. And then I traded just trading for building a proprietary trading firm. For me each was One Good Trade.About 10 minutes into our initial conversation my inner voice shouted,“We need to find a way to make sure this kid does nothing else but tradewith us.” As I will further discuss in Chapter 3, generally, I un-recruit candi-dates, but Franchise is the one interviewee whom I actually tried to close.Maybe it was the UConn connection. But somehow we persuaded him.What a find! Failing is not an option for me,” said MoneyMaker during his interviewwith me. I didn’t make much of this during my first meeting with him be-cause, honestly, a lot of candidates say stuff like this in their first interview.But for some reason I remember in great detail MoneyMaker saying this tome. And recently I asked him if he remembered this. He didn’t. But he ex-plained, “Trading is what I want to do, Bella. So failing is not an option.” Oh. One of the major themes that Mike Bellafiore makes clear within One Good Trade is that trading is a challenging endeavor that requires months (if not years) of solid training. It’s an extremely difficult craft. The market demands respect. And I agree with all of this. Let’s meet another talented star trader with an uber-profitable combi-nation of passion and pure, unadulterated trading talent. I especially appreciated him sharing his benchmarks, such as a consistently profitable trader should be profitable 17 of 20 days per month.

Trading is not a 100-hr a week job. At least, it isn’t for me. It certainly shouldn’t be. Trading is as close to being a professional athlete as I can think of. You must be well rested. Your performance changes from day to day. Trading – like sports – is performance based. Traders who trade well, just like athletes who play well, are paid more than they deserve. A trader must recharge after the trading day. You must be fresh and alert for the next session. Save the 100-hr work weeks for the investment bankers, lawyers, and analysts (and partners of trading firms like me). If you have made a trade and followed every one of these fundamentals then you have made One Good Trade. The result of the trade is irrelevant.

Customer reviews

During the past four years I have been growing a prop trading firm withmy childhood friend, Steve Spencer. We started with nothing (not even aphone) and today our firm, SMB Capital, employs more than 60 traders.One Good Trade offers all the important lessons the market has taught meover the past 12 years in and around prop trading. I share these marketlessons while introducing a cast of characters, some of whom have suc-ceeded, and too many who have failed.

Ask MoneyMaker what a friend would notice if he visits our tradingdesk and he answers: “That I just sit in front of my computer the wholeday. I could sit all day on my desk and wait for setups to happen to me andI don’t get bored.”Making One Good Trade is about having the skills to spot and capitalize on excellent risk/reward opportunities over-and-over again. There will of course be losses along the way, but if controlled, the long-term probabilities work themselves out over time. Contrary to what you might think, a prop firm should not be a cult oftraders who worship at the altar of its successful firm leader. SMB Capital isnot the Mike Bellafiore or Steve Spencer cult; as leaders, we don’t purportto be all knowing. We do not have all the answers. Guess how I know that? Sometimes, just like GM, I feel that I just can’t make money. And when youare getting beaten up consistently, it is human nature to viscerally conclude thatthe market is just too hard for you. But a good trader does not succumb to thisvery human yet initial overreaction. A good trader assumes the mentality thatthere is always an escape.