In One Good Trade and The PlayBook pieces of the books discuss why and how some traders we trained became successful.  Recently during an internal review of our traders, we identified one new trader with an exceptional equity curve (his earnings to losses were outsized).  Dr. Steenbarger has suggested to us in the past to study in depth our successful traders so as a firm we can deconstruct best practices and understand personality and cognitive types that excel with us.  Let’s do that together here and learn from this trader.

I e-mailed the trader and asked: Why do you think your start has been so successful with us?  The trader’s response offers best practices to copy for traders of all skill levels.  Perhaps the lessons inside his answer below can help improve your trading.

I believe my successful start can be attributed to three aspects:

1. The Foundation (The SMB Foundation) and other study material – I believe I read the foundation approx 5 times.  I also read a few of the popular trading books while taking notes (Market Wizards, Trading in the Zone, Tech Analysis Using Multiple Timeframes, etc.) and re-read important sections multiple times.  I essentially disregarded everything I knew about trading before starting this past September and wanted to start clean.  I wanted to discover and review all I reasonably could about the basics of trading so I could build a sound and reliable foundation on which I could build upon.  The first few months I repeatedly re-visited the Foundation and my notes to tweak my methodology.  This is something I continue to do today based on my everyday trading experiences.
2. Mentorship/Review – My mentor is CDog (nickname created).  He has been a tremendous help in developing my trading.  Literally everyday for my first 5 months we would review my trades.  Every trade he would challenge every detail of a trade I took – sample questions are listed below.  If he didn’t like an answer I gave, CDog would offer an explanation of why I was wrong in his opinion.  I think this worked so well because we were both committed in the review – He wanted me to do my best and I understood he knew more than I did.  We don’t meet as much as we used to since we both feel I have a good grasp of trading concepts to conduct a detailed trade review on my own – which I do everyday.
   • How did you find this stock?
   • Why was I in this trade?
   • What was your target and why?
   • If Scenario X happened, what would have you done?
   • Why did you exit this trade?
3. Gr8scripts and Market Filters – I have just enough experience with technology to know the powerful capabilities it can provide.  When I was on demo, I spent a considerable amount of time learning Kershner’s technology (SMB and The Kershner Trading Group formed a JV in NYC and traders trade on proprietary technology developed and maintained by KTG- Bella note).  I’m no tech wizard so I made a lot of mistakes in the beginning – even crashing the system a few times.  But after a few months I understood python well enough to write some scripts and develop a few Market Filters without negatively affecting the system.  When I first started trading, my scripts were the reason for my success.  I knew I didn’t know enough yet to fully understand every trade setup so I limited myself to only trading setups that I wrote in my scripts.  I started with writing a bear/bull flag setup.  Once I felt that I attained a grasp on that setup I moved on to writing a held bid/offer script – so on and so forth.  While these scripts provided many great setups, they also yielded numerous ticker alerts with weak setups.  There are so many variables that make a setup “trade-able” or “untradeable” – so for now scripts have kind of taken a back seat as I conduct more review on how to properly define a trade-able setups.  Today, I essentially rely on my market filters to help me as I continue to take notes and develop my scripts.

I started with my focus on studying – laying the foundation.  But what really helps the most now is the detailed trading review.  I feel the review improves my understanding in numerous ways – seeing mistakes, creating reasonable expectations for the future, observing how a particular stock/sector trades, how a setup develops and where it works based on time, price action and volume, etc.  Furthermore, the review gives parameters on how to write a script.  I understand that most of what I’ve written is not new to you; its actually what you both preach.  So, I don’t have a secret per se, but rather I simply put my trust in this philosophy and work hard to develop myself as fast as I can.  Whenever I see the hard work pay off, it strengthens my belief and only motivates me to do more.  I understand I still have a long way to go – I’m no guru yet – but hopefully by repeated study, review and development I will be one day…  I hope this has effectively explained the reasons as to why I think I’ve been successful so far.

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook.

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