“You have to have an idea of what you are going to do, but it should be a vague idea.”
Pablo Picasso

SMB Capital started as just an idea. “Hey what if we focused on building an elite training program for new traders. The markets are much more complicated than when we began,” pitched a future co-founder. Then two experienced traders made One Good Trade, trading only trading and all its freedom for trading and building a firm, with the grueling schedule of a contested presidential primary. They were boyhood friends, both with law degrees, a decade of trading experience, but with very different talents. There was never any thought of Wall Street Warriors, CNBC, magazine profiles, SMB Blog, StockTwits TV, and now One Good Trade. Papers were filed, business arrangements struck, some money moved around, and it just all started.

Towards this ambitious goal of creating an elite trader training program, a whole lot of domain knowledge needed to be shared with new traders. The partners wrote after every close like hungry novelists about trading principles the market had taught them. Weekends now belonged to this idea. Then new traders entered stage right creating real life stories of success and unfortunately failure mastering these important market principles. Amazing future star traders walked our trading floor like Franchise, Dr. Momentum, MoneyMaker, GMan, JToma, and G. And chapters of trading stories compiled. Some if you had made up no one would ever believe (see reality TV).

So then came SMB Blog sharing the stories of new, developing and professional traders trading the markets. This new SMB believed that you work with those whom you deserve to work. If you share goodness then better candidates will walk onto your training floor. We got that right.

Along this journey we made many friends, one a preeminent trading coach, the Coach K of trading coaches, Dr. Steenbarger. He encouraged me to write a book. How did I have time to write a book when I was barely sleeping four hours building my firm? Some time went by and Dr. Steenbarger encouraged me again. Dr. S is persistent isn’t he?

I enjoyed writing. Our blog readership was growing. The feedback was educating and grateful. I had something to say about what really makes the difference between success or failure as a trader in longer form. So finally I reached out to Dr. Steenbarger for a next step.

I was invited to speak at the 2009 Trader Expo in NYC and an editor from Wiley was to attend catching my content. I talked at the audience about building trading skills, original content at this event. I had a power point ready, prepared for weeks, with a word for word speech prepared. As would be expected of anything you do for the first time my presentation was horrible! After I finished I handed the Wiley editor a binder of the hundreds of blogs I had written (man I hope he just walked in at the very end), with an outline of the book I wanted to share with the trading community. We talked at a public table with other nearby tables possessed by noisy deal makers at the Marriott Marquis. I left thinking if I ever get a chance to write this book I have so much to say and in a way so entertaining.

Today One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)
is the number one selling trading book this summer. One Good Trade is a collection of trading stories of whom we have taught, sat next to, heard about, with market lessons wrapped inside. I share what the market has taught me over the past twelve years as a trader always with skin in the game. One Good Trade is the first book to ever gift an inside look at the “eat what you kill” world of proprietary trading.

And it all started because of an idea, a friend’s encouragement, an invitation from The MoneyShow and despite a horrid presentation by this author.

Dr. Steenbarger, author of the The Daily Trading Coach, reviews One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)
in this article at Seeking Alpha. From Dr. Steenbarger:

Prop trading firms have traditionally been quite secretive about what they do and how they do it. Mike has lifted that lid, offering a variety of lessons that new and experienced traders can benefit from.

One Good Trade is filled with anecdotes of real traders facing real challenges in learning and mastering markets.

For more please read here.

This week Roy Davis, Director of SMB Training, and I headed to the 92nd Street Y to listen to Dan Pink discuss his excellent, well-researched, thought-provoking new book on motivation in the workplace, Drive. Dan challenges our present management model by presenting new evidence why a motivational work environment should offer purpose, mastery, and autonomy (see awesome Dan Pink animated video here on motivation). Most corporate work environments are about control and finding ways to make employees do their work. The later is a great way to demotivate your staff for creative tasks according to Mr. Pink’s research.

During a question and answer Mr. Pink was asked how one determines their best career path. He started noting that most would suggest that you do what you love. Who hasn’t heard this advice? Dan then shifted gears and shared a better suggestion:

“Do what you do.”

As an example, at Yale Law School Dan spent most of his free time writing political pieces for nominal pay. Malcolm Gladwell in Outliers shares how Bill Gates wrote computer code at a local university endlessly in his teens.

I was talking with Tim Bourquin from Traderinterviews.com this week via email and he asked me about our recruiting matrix. Without giving away the secret sauce the two answers I find most interesting from new trading candidates are to these questions:
a) Do you have a personal trading account?
b) What trading blogs do you read?
And when discussing the optimal recruiting matrix with Dr. Steenbarger, a noted trading psychologist and author, he suggested that people who really want to trade find a way to trade.

So for those who wish to be motivated with their work (trading?), from Dr. Steenbarger to Dan Pink to SMB Capital- Do what you do!

Wow!  The iPad has already passed the Android in browsing traffic.  I love mine!

From consistently the best content provider for finance Henry Blodget of Business Insider, Is Facebook Once Again Overhyped?

The best trading coach I know, Dr. Steenbarger- The Daily Trading Coach, shares his opinion of One Good Trade (Wiley).

Is law school tuition in a bubble?

Spend Thursday night listening to an awesome NYC based artist, Martin Revis.

Jim Gobetz, @aiki14, shares his views on GS/SEC complaint.

Thxs to Wall Street Cheat Sheet, for answering an important question for traders trading BP after their spill.

What’s next for Bidu? Corey Rosenbloom of afraidtotrade.com takes a look.

Steve Jobs’ commencement address video with some life advise for recent college graduates and non recent college graduates for that matter

Steve Jobs using his good fortune and power to give back.

Great quote of the week from Andy Kershner’s, CEO of the excellent prop firm Kershner Trading Group in Austin, Texas, email:

“Nothing great was ever achieved without enthusiasm.” Ralph Waldo Emerson

The Trenton Thunder, Gov. Chris Christie, working to make New Jersey more competitive.

Governor Perry and his philosophy on how to make Texas more competitive.

A Day Trader in Congress.

Another great anecdote about Steve Jobs. Taking your time to hit your stride from the Emmy Award winner Minyanville.

HUGE congratulations to Josh Brown, from The Reformed Broker, for landing a writing gig with Forbes.

Will Smith video on the key to life: Running and Reading.

Priorities.

Where is Dr. Steenbarger heading next ?

From the great trading mentor, author/blogger and friend to so many of us:
“If you put yourself out there, share your best ideas, reach out to people, and give more than anyone ever could expect you to give, you’ll attract the right kinds of people–and the right kinds of opportunity.”

I received the following email from Reader Brent:

Dear Bella,
 
I have followed SMB Capital since WSW on Mojo and have been following the blog for several months now.  I am impressed by the quality of content that you guys release and it has helped my trading greatly.  I am a remote trader for a prop firm and have been trading for 11 months now.  My trading follows a very specific pattern.  I have long periods of small to mid sized winners and then I have 1 large loss that wipes out almost all of the gains.  Every time I feel like I have corrected this problem it seems to return.  After this happens I always feel demoralized and like I am not cut out to be a trader.
 
My question for you is how do you overcome being a stubborn person.  A few weeks ago on the blog you mentioned that one of the traders realized what he needed to do to become a better trader was to be more patient and to be more patient as a trader he would have to become more patient as a person.  I have clearly identified the issue for me as being stubborn.
 
I sensed weakness today in the Casinos and started to put on a short position.  I spread this out over PENN WYNN and LVS.  Penn was the largest position and the one I felt had the biggest potential.  I put on a small position in the 27.50s with the intention of using 27.63 and 27.73 as my stops.  What ended up happening is I capitulated at the top having held a trade well past where I knew made sense.  The problem: I WAS STUBBORN.  I recognize the problem and I want to fix this.  I feel this single personality flaw is what is keeping me from really developing as a trader.
 
If you have any suggestions on how I can work on my stubbornness as a trader or as a person for that matter I would greatly appreciate it.  Thank you for your time, enjoy your weekend and lastly keep up the amazing content on the blog!

Bella Responds:

1) You can become a successful trader.  You have found patterns that work for you and are positive on most days.  This is excellent work!  This is a terrific foundation from which to build!  Well done!

2) OK so now that we have you off the ledge let me me offer this comment.  If you are stubborn in your personal life this will permeate your trading.  You need to work on this.  The talented trader who recognized his trading suffered because he himself was impatient, concluded correctly that he needed to do more things in his daily life that built personal patience. 

3) We teach our traders to develop an exit plan for if a stock trades in their favor or against them BEFORE entering a trade.  We call this having a detailed trading plan before every trade.  This is one of our trading fundamentals for One Good Trade and must be followed.  And then the next fundamental is discipline.  If you stock hits your exit price for if it trades against you then you MUST hit the stock.

4)  You can build the skill to hit stocks that trade against you.  If you have trouble hitting stocks that reach your exit price, then start doing visualization exercises.  Find a quiet spot, breath deeply for two minutes, then rehearse a trade that hits your exit price and visualize yourself hitting out of this stock, then repeat.  For more about using visualization to improve your trading see TraderFeed and the excellent work of Dr. Steenbarger.  TraderFeed should be daily reading for every trader. 

5) I will leave you with this quote from the great Jesse Livermore:  “Losing money is the least of my troubles.  A loss never troubles me after I take it.  I forget it overnight.  But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.” 

I received the following email from Reader Ed:

Hi Mike,

I hope you are doing great and all is well by you.  I was wondering if I could run something past you if you don’t mind.  I was the trader that Dr. Brett mentioned in his 3/14 article, “the mistakes traders make.”.   I was wondering if you would mind telling me what the win rates at your firm look like.  What is such a struggle for me is knowing where I stand relative to the time I have been doing this, which is less a bit less than two years.  The toughest question that I ask myself is “how am I doing at this point?”  Thx so much for your response, I really appreciate it.

Bella Responds:

Ed terrific questions and great job working on your trading game!  This effort illuminates how well you are probably doing and will do.  Dr. Steenbarger is the ultimate source for trading advice so maybe we can get him to respond as well. He still responds to my emails so I will try and coax him into a blog response as well

Every trader has a different win rate.  This depends on your trading style.  A micro-scalper will have a very high win rate of perhaps 80 percent.  A trader who focuses on Trades2Hold, longer term intraday trades, may have a thirty percent win rate.  Both can be exceedingly profitable.

Also your win rate will vary depending on the time of the day and time frame.  My win rate is best on the Open and worst midday.  A short term trader will have a higher win rate than a longer term trader.

What your win rate ought to be or how well you are doing might be dissected with these questions:  When you review your trades are there set ups that make the most sense to you, that you have made your own?  How can you make more of them?  Are there trades that statistically do not work for you?  GMan religiously keeps stats on what is working for him.  He tweaks his trades depending on his stats.  Some trading periods he focuses on micro-scalping and others Trades2Hold.  He lets his stats lead the way.  And now he is a Partner!

Make more of the trades that work best for you and get rid of the ones that are not working.

Thanks for your question.

Aren’t we all just looking for trading patterns?

Dr. Steenbarger continuing to add more value to the trading community.

The John Stewart of financial commentary Howard Lindzon offers his tips for trading/investing.

A look at where we are with SPY from afraidtotrade.com.

Are you setting ambitious goals for your trading?

Training for the NFL draft.  Thanks to one of my good friends and sports agent for sending.

I will be purchasing Lilly Scott’s first album.  What a beautiful voice!

Less than two weeks till I will be soaking in the sun and Spring Training at Legends Field.

Excellent summary of the markets for the week.

Must read about what it takes to become a successful trader from @thekirkreport

Fascinating post about a new focus on the rotational training of professional baseball players.

A successful trader gives some hints about his shorting system for equity traders.

A statistical expert blogger discusses the odds of health care passing.

Using stats to improve our health care delivery.

Preparation for next week from Brian Shannon, @alphatrends.

SMB Traders will be watching this free seminar from Dr. Steenbarger of TraderFeed.

An advanced technical look at where we are at in the markets.

Quote of the Week:

“It’s not enough that we do our best; sometimes we have to do what’s required.” Churchill

In a recent blog Dr. Steenbarger talked about a vital skill for the intraday trader, reading the tape.  Dr. Steenbarger, aka the godfather of modern trading psychology, wrote: “My experience is that an understanding of (and ability to read) order flow is one important factor that separates the older, successful generation of daytraders from the newbies who only know simple chart patterns and indicator readings.”  I am one from this older generation of intraday traders.  And I thought this old-timer could share his thoughts on reading the tape and how it impacts the developing intraday trader.

In the past I have disappointingly heard developing traders state,”I am just going to focus on the charts going forward.  I can’t read the tape.”  I have heard this uttered on numerous occasions. Not one of these individuals became successful traders.

Recently, our newest class has moved from the first part of our training to the second part, Trader Development.  After the Close we answered their questions and discussed what was important on Day 6 of their live trading career. (Oh to be young again.  What was I doing on Day 6 of my trading career?)  And one of our promising traders discussed a trailing stop for a MS trade today.  Trailing stop?  My impression was this talented new trader had trouble reading the tape so was experimenting with these trailing stops to minimize this weakness.  This is not the right approach.  I counseled to continue working on the skill of reading the tape and to sell the stock on the offer when the tape showed weakness.  And I did so because this is what an older generation intraday trader, like myself, does.

And I offered an analogy about not learning how to read the tape.  To me not learning this skill is like a basketball player not working on their free throws.  This athlete just decides to keep clanging their free throws and give up some easy points.  This same new trader offered a better analogy. (Hey we hire smart new traders.  Obviously this analogy was much better than mine.  In the future I will take creative license to just use his idea as my own.  After all what is the point of being a partner if you can’t steal the analogies from your trainees.)  Back to this better analogy from the youngster who just started trading.  Not developing this skill is like the amateur golfer hitting only irons during his round because he never learns to hit driver.

I like that.

Still not convinced?  Let’s bring is some famous market players for further persuasion.

Exhibit A:  Steve Cohen of SAC Capital: “…everything I do today has its roots in those early tape-reading experiences.”

Exhibit B: Jesse Livermore:  ”A battle goes on in the stock market and the tape is your telescope.  You can depend upon it seven out of ten cases.”

Exhibit C: Linda Rascheke: “If you can learn to follow the price action, you will be two steps ahead of the game….”

Exhibit D: Paul Tudor Jones: “…..at the end of the day, I am a slave to the tape and proud of it.”

So learn to read the tape.  It will help you become a consistently profitable trader.  It will give you an edge over other intraday traders.

Best of luck with your trading! Don’t forget to follow us on Twitter!