I bought a stock today after it cleared an important resistance level. It was neither strong nor weak. I didn’t sell it. I didn’t buy more. I am still just sitting there holding. I am not confident it will trade higher nor am I concerned I will get stopped out. I am not optimistic nor pessimistic. This trade is a nothing.

RIMM could just not trade above 74.60 the other day, after clearing the important 71.80 and 72 technical levels. RIMM just couldn’t- no matter how many times Steve and I encouraged (screamed?) at RIMM to trade higher.
“Get up you piece of $hit already!”
Yeah that didn’t work. We felt better but it didn’t make RIMM trade higher. So this was our important intraday resistance level. I set an alert for 74.65. We talked about this level on our desk. And I just waited.

Finally RIMM made the journey above 74.65, and the bid was holding as well. I bought a small position. Initially RIMM acted well but then it didn’t. Later in the day it acted well, but then there was no follow through. RIMM is still above my stop. But the market is still below SPY 115 which is an important market resistance level. Maybe RIMM just cannot find 80 if we are not firmly above SPY 115?

I didn’t get stopped out. There were no real buy orders that I spotted in RIMM. It did close higher but not much higher than the 74.65 resistance level. If the market so much as coughs I could envision getting stopped out.

But there is just nothing to do with this trade. I could sell it and wait for the clear buy orders to enter the stock. This is an option. But for my system RIMM is still below my stop so I stayed long. And all day I stayed long for the same reason. This trade is just a nothing.

Hoping you become a better trader tomorrow than you are today!

We had been waiting for BRK.B to hold above 80 for a Trade2Hold to perhaps 82.  Friday we almost had the hold above 80 but ran out of time.  80.10 became the new hurdle to clear before BRK.B knocked on the door of 82.

Today during one of those times Steve always warns that stocks can move, lunch time, BRK.B cleared 80.10.  I was doing something partner related and missed the first ticks above the level.  I made it back onto our trading floor and a few traders were chirping that BRK.B was above the level. SPY had cleared all important intraday resistance levels with 113 the next most likely stop.  So we had a very strong market on our side as well.  We had another check in our favor.  BRK.B was 80.25 bid, I sat down, bid 80.25, and  got hit.

GMan has some dopey meeting he wanted me in, so I set a stop for below the fig and exited the floor.  There was nothing really for me to do.  80.10 was a huge level so I didn’t need to do much other than stay long.  Periodically I checked in on my positions and reset my stops higher for BRK.B.  But I wanted to be in this trade.

Now certainly if I would have had more time I would have wanted to add here and there and increase my size.  But I didn’t have the time so I just stuck with my Trade2Hold from above 80.10.  Into the Close I added some size here and there, but not much.  Before the close I scaled out of 2/3 of my position at 81.90.  The only reason I lighted up was I was not interested in much overnight risk.

When we review our best Trades2Hold it is important to decode why they worked.  We cannot discount how strong the market was.  We cannot overlook that the market was strong AND it trended smoothly higher.  There were no moments when we wondered whether the uptrend in SPY would break and thus cause our stocks to break their uptrend.  We do not get days often like this as mostly the market provides us some moments of indecision and surprise.  But today was not one of them.  BRK.B did not offer moments of indecision.

We talk about needing a Reason2Sell when we enter a Trade2Hold.  Sometimes that reason is simply the bell is about to ring.

Best of luck with your trading!

Long 1/3 of a lot for BRK.B

I remember the discussion like it was yesterday in our former 8×10 makeshift training room/office/conference room/lounge, with the first trader who ever failed at SMB Capital.   JJ announced he was leaving to take a six figure job at a financial services company in NYC.   But let’s be honest.  JJ was leaving because he was not making money as a trader.   And while he put on an off to better things face, JJ did not want to leave.

I did not sleep well for a month. I felt like his failure was my failure. And I am sure JJ did not sleep well for two months prior to our exit conversation. I still miss having him as a part of our firm. JJ was the most likable guy on our trading desk. But these scenes happen every quarter at even the best of proprietary trading desks, including the big banks.

My manuscript is done and in the hands of Wiley Publishing for One Good Trade: Inside the Highly Competitive World of Proprietary Trading and interestingly enough two chapters were devoted to why traders fail. The failure rate is too high in our industry. There I said it! And I wrote extensively about this in my book. It is so for a variety of reasons including:

1) some are not qualified
2) most are poorly trained
3) many do not have a passion for trading and cannot sustain the energy to improve daily
4) the learning curve is too difficult
5) they are not good enough

I agree with Charles Kirk from the awesome The Kirk Report that you can become a solid trader if you are willing to put in the time. But many believe their passion is trading, then sit on a trading desk, see the work required to succeed, and are not willing to do the work.

The market requires that you become an elite performer. Most people can “punch the clock” at their jobs, do average work, and be appreciated by their employers. Heck you might even get promoted. Try this as a trader and the market will swallow you like a shark does squid. The best trader on our desk grinds it out daily like a steam pipe fitter.

When someone interviews for our desk and asks how long it will take for them to become consistently profitable I answer directly. It depends on the person. But if you are not prepared to work and struggle (you do not learn if you do not struggle) for 6-8 months, honing your craft before you sustain profitability, then I suggest other work. Too many enter our profession without a realistic time frame for becoming profitable.

There is a learning curve in our arena, no one is beyond it, and trading is the ultimate challenge. We recruit many Division I athletes for our desk. And I share as a former athlete, “Even considering your past, you have no idea what it is like to be competitive until you trade professionally.”

Numbers abound about what the failure rate is. Some say 95 percent. Others claim 80. We had a college student fly across the country to visit us who was writing his college thesis on this very subject. He came in at 90 percent. At a big bank the whisper number is 55 percent. I had dinner last night with a close friend that relayed the head trader at a Tier I investment house was bemoaning the worst part of his job- letting failed traders go.

These numbers above include far too many people who should have never tried. There are too many bad acting firms who promise early riches preying on the monetarily ambitious, who have no passion for trading. These noobs are merely hunting for the next big game in our economy. And these pikers get included in the failure data. The market spits out these miscasts. And so the failure rate may be high, but really is not relevant to those who deserve an opportunity.

Most excellent prop firms screen their new traders carefully. At our firm 95 percent of all who apply never receive an interview. And let me say that there are some who make it inside our doors who after learning more about them, never had a chance to become a profitable trader. For even those who are accepted into our training program there will be those who fail. Some classes have 5/6 still trading, others 3/9 (though two quit early and one was fired the first week). The best we can offer to qualified candidates who receive an invitation to train with us is to give them the best chance to succeed. This is the most we can promise!

It is the obligation of a proprietary trading firm to offer the very best training possible for new traders. This is simply offering opportunities for traders to develop the intricate skills that will determine their success. The markets have changed substantially since when I began. The old school sit next to a successful trader and learn through osmosis teachings are outdated and must be replaced by modern training (I will write more about this for SFO Magazine in June). I have the privilege of receiving dozens of emails daily from new traders who detail the training they are receiving from other firms. Most talk of their struggles. Almost always their training is substandard. This is an unfortunately huge factor in why so many fail.

A firm must allow you to lose money if you are doing all the things necessary to succeed and improving. Down 50k but working hard and getting better every day is not a reason to cut a trader. Not doing the work demanded by the market and slightly positive or worse, then the firm owes it to all the other traders on the desk to get rid of that underperformer. These noobs hurt morale, drain firm resources, and do not deserve the privilege of trading professionally.

To become great at anything requires deliberate practice. If you want to get better at a consolidation play you must practice this trade hundreds of times until you have developed the skills to automatically trade this play in real time. How many three pointers do you think Kobe shoots everyday? Training that does not stress deep practice is unsatisfactory.

For the developing trader just learning simple charting set ups is not enough. This is the great myth held by too many who have never traded real money live. How hard could this trading be? All you have to do is get long when AMZN hits 116 and kick it out at 130. This has not been my experience with the market.

And it is great that you have learned a new technical set up. Now how do you trade the fifteen subsets of that trade which the market will demand you learn? Trading is not about learning a simple charting set up and then executing. If you do not agree then go and try it. One day you might crush it and leave the market a self-delusional future star. And then the next few trading sessions you will get stopped out (assuming you honor a daily stop out) and lose much more than that day you crushed it. Such thoughts are like the golfer (hacker?) who drains a fifty foot put and then believes he is a great putter.

If trading were that simple there would be no need for discretionary trading. All trading would be automated. And we all know that automated trading systems fail at a higher rate than discretionary traders. It is about the subsets, the nuances, mastering the different market variables that separates the veteran profitable trader from the noob looking to cash his first paycheck. Too many new traders gravitate towards the simple, which is an unappetizing recipe for failure.

Scalping after just learning how to Read the Tape is also insufficient. If you are at a firm and all they teach is to follow the order flow I offer this advice- RUN! Run from that firm as fast and as far as you can. Also, trading without a grasp of intraday fundamentals will be penalized by Mother Market. Look you must learn technical analysis, how to Read the Tape, and intraday fundamentals to succeed as an intraday trader. All of this takes concerted practice over time until you develop the skills necessary to consistently take money out of the market.

Trading is a performance based business. After the Close yesterday Steve and I reviewed our trading in QCOM on the Open and AMZN in the After Hours. I have traded my own money for twelve years. I missed a QCOM short for size and an easy multiple point downmove by a millisecond yesterday. This is not acceptable (though I eventually put together a decent day). It was my fault for missing that trade.

Too many new traders miss these trades and never obsess about not missing the next one. It is always someone else’s fault. If only I sat next to that trader. If I just had a better charting package. If only that girl I was seeing wasn’t so needy. That is all bull $hit. You determine your destiny as a trader. It is up to you to perform. I didn’t miss that trade in QCOM because I was patrolling our risk monitor (which I was) watching the work of a new trader. I missed that trade because I missed that trade! And too few ever develop this mentality to survive as a professional trader.

A group of college students from Texas A&M visited us recently and I will share what we discussed. I graduated from law school with a safe job awaiting. I just couldn’t do it. To me I felt like I would be selling out. If you have a passion for something, then go learn if you possess a talent for it as well. But have a Plan B. You will become great at that which you have a passion and engage in deliberate practice for and rewards your talents. This could very well be trading. But maybe not.

To me trading is the greatest job in the world. Every day is new. I sit around bright, talented, ambitious, well educated, market followers quick to crack a joke and smile. If you become successful your upside is unlimited. When I used to just trade, Steve and I vacationed and went wherever we wanted. There were very few boundaries to our world. Trading is stimulating. It requires you to find the best inside of you. The best decision I ever made was shunning a career not a fit for me to trade.

If trading is your passion, you possess the ability to survive the learning curve, are willing to engage in deliberate practice to develop trading skills, have a history of success, and a Plan B, then you should consider trading. And you need not be an Ivy League graduate to become a great trader. And the market does not care if you have family connections while executing trades. Nor must you work at a big bank or live in NYC. But please find a firm that will provide you with the tools and education necessary to succeed. And understand that those who make it have developed their trading skills through deliberate practice, work that many are unwilling to do.

If you have taken this path and wish to ask me a trading question, please feel free to reach out to me.

Best of luck with your trading!

GMan, Joe P and I traded QCOM After Hours (chop!) and then I hopped on the subway much earlier than usual to head uptown. It was a road trip for SMB to experience Avatar on the IMax with 3D glasses. On my ride uptown I overheard some new day traders from another firm talking. I found their conversation unproductive.

Three twenty something new traders stood bantering away. Did they discuss QCOM after the Close and the repeating ARCA and then NASD sellers who would not lift? After chopping up this play GMan exclaimed,”That was a 3k play.” And then he sat and started to replay how he will make that happen next chance he sees this pattern. Joe P joined in GMan’s quest to better trade this AH trading pattern.

Did they discuss the downmove of CAT below 53.50 and the double bottom at 51.25 that fueled an impressive upmove into the Close? Did they discuss crazy AAPL today? At one point I thought we might see 225. At another point I thought we might find 195. At other times a few thousand shares moved AAPL 50c. I tweeted:
if you want to know how the mkts would trade if we passed transaction tax watch $AAPL no liquidity $$
How about the bounce into the Close? How about the failure to close below SPY 109? How about the amazing new tablet to be offered by AAPL? How about Congress grilling Geithner? The President’s State of the Union? The Toyota recall? The Bullwhip effect on the front page of the Journal and that Steve highlighted during our AM meeting? The Fed decision to leave rates unchanged? What to trade tomorrow?

After this day, these new traders with an audience of other well educated traders, and a thirty minute subway ride ahead of them decided to talk about?

You learn so much from talking trading with other traders. Right after the Close is the best time to talk trading as your mind is fresh with specific details about trading patterns. By listening to others discuss their trading you can learn a trading pattern that perhaps you can use. You can gain information about important levels in stocks you may not have traded. You can learn how some stocks may trade. You can get a different perspective on perhaps the same stocks you were trading by swapping war stories. And on and on and on and on……

And look these guys were very polite, bright, ambitious traders. They work at a very good firm and I wish them nothing but the best. But they had a choice how to spend their time during that subway ride. And they chose to talk about? It wasn’t anything to do about making them a better trader. They talked about how much others at their firm were making. It was impressive how much knew about how much others were making.

Your life is what you do and not how much you make, where you sit on an airplane, who your parents are, or where you live (it is also partly how hot your girlfriend is . If you goal is to become an elite trader then your time is a very valuable commodity. It is the most important commodity that you have. Use it wisely. Act in your self interest. Be focuses on all things becoming a better trader. Talking trading with other traders in your firm is a great way to get better.

BTW SMB loved Avatar. Amazing visuals. An incredible movie experience. I would tell you what disappointed Dov about the movie but I am not sure if that is even appropriate for a blog.

Best of luck with your trading!

Darrelle Revis, standout cornerback of the NY Jets, offers another example of the power of deliberate practice.

Good news on the jobs front for 2010.

Advice on picking stocks for the next decade.

For New Year’s Eve I was in AC and caught David Gray in concert. His energy, passion, and his band’s mastery of their craft was inspirational.

The wondrous economic creation of the last decade.

Awesome article on how to adapt to High Frequency Trading (HFT)

When asked after Florida’s beating of Cincinnati if he could sense his team was ready to play well in the locker room the day of the Sugar Bowl, Coach Urban Meyer instructed he was confident his team would play well because of how well they practiced Tuesday and Wednesday before the game. Congratulations to U of Cincinnati on a great year.

How the tennis great John McEnroe is now more fit at 50 than when he was on tour.

Things that Todd Harrison, head of Minyanville, learned the past few years.

We at SMB wish all a great start to this new year!

As a trader our quest is to make trading opportunities our own.  We are all different.  We process information uniquely, have a different tolerance for pain, trade specific set ups better than others, etc.  As intraday traders we must have Trades2Hold, longer term intraday trades in our quiver.  But it is up to find these best ones for us.  Today in RIMM the market offered a trading opportunity, Trade2Hold, for you.

The day after earnings 70.30 and 71.65 were important intraday levels.  To refresh your memory RIMM leaked below 70.30 and then tanked.  But at 68.60 a buyer held the bid.  This became a very important level in RIMM.

On the day after earnings traders become very interested in a stock.  Volume rises.  You learn more about the potential direction of the stock over the next month than ordinary trading sessions.  The Big Boys battle and you can see who has control of the stock and in which direction that is.

Since the day RIMM reported 68.60 was an alert set on my trading platform.  Then today it went off.  I had been keeping an eye on RIMM before this.  I did notice the weakness.

RIMM blasted below 68.60 without hesitation, a sign of weakness on the tape.  I hit the bids and started a short position.  RIMM slowed so I covered.  The offer did not lift, as I spotted a panic sell program led by FLOW, so I reshorted.  RIMM slowed and then I covered again.  Normally I do not cover below such an important level quickly but the downmove had been steep, RIMM has a tendancy to reverse, and I needed more consolidation below the important level to hold the position.

Well I finally got that.  RIMM could not trade above 68.27.  This was below the important level.  I got the consolidation I needed.  The next support level was not until 66.20ish (depends on your trading time frame), with a distinct possibility of finding 65 based upon the steep downmoves.  Trade2Hold.

As I write I am still short.  Perhaps I will get stopped out of this trade.   Perhaps RIMM will find 65 today.  Honestly I really don’t care.  My job is to make these trades when I spot the opportunity.  I cannot control the results.  What I have done is found this Trade2Hold set up that makes sense to me.  And I have incorporated it into my trading with success.

So if you think this trade might work for you have at it.  If not, good job of considering it for your quiver.  This is the type of exploration as traders we must do.

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

Short RIMM

SMB is very proud to announce that two of our traders have started their own fund: Xanthus Capital Management.  While Connor and G will be missed, we are very excited for them.  And since they live around the corner from our new office, I am sure we will still see plenty of them.

G has never had a bad day (enjoys everyday to the fullest).  Connor is one of the most competitive traders we have ever taught.  Two excellent qualities for future fund stars.  We wish them the very best of luck!

Teaching new traders how to trade has made me a better trader.  Below are five things I have learned about trading by teaching.

1) I have cemented the statistically profitable trades that work intraday.  Being forced to teach others trading plays has made me recognize exactly which plays work best for me.

2) Video review with other traders increases my screen time which has improved my trading.  There is all this talk about how hard it is to read the tape.  Yada yada yada.  I just do not have trouble reading the tape.  Since I often lead video review sessions with our new traders I am exposed to more market patterns than the average trader, which has sharpened my reading the tape skills.

3) New traders have struggled with the same things that I do.  I have been forced to learn how to cope with some of my shortcomings to help other new traders.  Specifically I have become very well versed in visualization, which has helped me control my emotions better as a trader.

4) Teaching challenged me to formalize my trading system.  This is different than just finding statistically profitable trades.  For example I never double down before because I recognized after working with new traders that it did not work for how we trade.  I used to double down on certain occasions.   Also, I do not fade as much as I used to because teaching new traders trend trading showed me the folly in some of my previous fade trading.  I trade the most active stocks daily, Stocks In Play, after allowing some to trade a basket and learning that this is just not as efficient for intraday trading.

5) Teaching has increased my confidence.  While working with others I experience that I do truly know what is most important to succeed as a trader.  I have been taught by the market all the little things that really make a difference.  My trading principles have been challenged by uber smart, ambitious new traders.  Each conversation reinforces that I have correctly deciphered the lessons from Mother Market.  And that spending your day committed to these things that are really are important is why you succeed.  Things like: keeping a detailed trading journal, visualization exercises, tweaking my playbook continually, staying positive, and video review of trading.

I have learned so much more than these five things above.  But I have to head into a video review session this Saturday AM with our new traders now.  Time to sharpen my reading the tape skills.  I hope someone saved me a bagel.

Enjoy your weekend. Don’t forget to follow us on Twitter

One our traders came over as I was talking to Jay our hyperkinetic intern about the cool new retweet button he installed on our blog, “Bella do you have a minute.”  As a partner I have learned what can follow could be just about anything.  Previously in the day one of the calmer traders on our desk stormed into my office and exclaimed,”I just did the stupidest thing.  I am going home before things get worse.”   Before I could answer he closed my office door and stormed away.  ”Have a nice weekend?”   Well I can’t say my days as a partner at SMB are ever boring.  So what did this trader want to talk about?

Frustrated he brought up a chart of OXY.  OK great.  This is a conversation I can handle.  He moaned about being,”the worst trader in the world.”  Every trader has this thought every week.  Get used to it.   He outlined how badly he had messed up an opportunity in OXY at a key resistance point.  Then he moaned again.  Finally I cut in.

Sure OXY was difficult near the 81.50-60 resistance level.  There was some above below nonsense around this key level.  Get that.  Seen that before.   Not sure I wouldn’t have ripped up some money around this level as well.   Not exactly something to be all that surprised about.  This is just another example of what Dr. Steenbarger described in a lecture to our firm this week as “choppiness” around important levels in the market.  This is probably not going away as long as HFT remains.

And this trader, a person of exceptional intellectual acumen, was all caught up in the money he ripped up around this level.  And I looked at the chart.  I could certainly see how this had happened.  Personally I agreed that he ripped up too much.  But so what?  While looking at the chart there was something crystal clear to me as an experienced trader.  A trading veteran who has started many a trading setup ripping up too much money and then crushed the stock just moments later.   There was an easier trade just staring at us on the chart.  A trade that would have more than made up for any previous rip.  An opportunity that if seized would have manifested a solid trading day.

Below this important resistance level of 81.50-81.60 there was consolidation around 81.25.  We love these plays.  Consolidation after a failure is a technical layup for the intraday trader.  Give me more looks at trading set ups like this please Mother Market.  And then OXY broke down from this consolidation.   Further SPY was showing difficulty holding above 112 a huge resistance level from this week.  This was a Trade2Hold.  This was an easier trade.

Let’s take a look at the math.  This trader has just started his trading career so was trading with only 200 shares.  He ripped up $100 bucks near the 81.50-60 level.  Instead of focusing so much on these rips what if he focused on all of the opportunity that OXY offered.   He shorts 200 shares when 81.50 fails again.  At 81.20 he covers a hundred shares as it slows and is not down $40 bucks.  And then when OXY consolidates he reshorts another 100 shares at 81.30.  The market is weak, OXY starts to trade lower and the first place to even consider covering is 80.  He covers a hundred shares and is now up $210 while still long a hundred shares.  80 fails to hold so you reshort another 100 shares with a mark or 79.95.  OXY continues lower with the market.  Let’s say when SPY hits 110 a huge support level he gets flat OXY at 78.20.  Chop!

Remember starting the day down $100.  I wouldn’t.  Would you consider OXY a difficult stock.  No, it was ripe with opportunity.  Now as a brand new trader he is up $565 (I hope like hell I got that math right!).  Not bad for a Noob.

This easier trade was your ticket to a profitably trade.  And to all developing traders I have seen opportunities like this after rips day after day for the past twelve years.  Find that easier trade.

Best of luck with your trading!

I wasn’t planning on trading AIG.  I thought SEED would consume most of my attention.   Actually I thought I could establish a decent size position in SEED, sit back, and enjoy the ride.  I would let the MoMo hedge fund traders do their thing.  Who am I to get in the way of a low volume market pattern?

SEED above 12 was an excellent trading opportunity.  But while SEED was not moving AIG called for me.

“Bella get in there.”

“Mike you don’t want to miss a break down in me today.”

And so I nibbled.  When I just start trading a stock I like to feel its strength and weakness by trading in and out of it with small size.  I can tell by how easy it is to get hit on the bid and possibly how difficult it is to get taken on the offer just how weak an AIG is.   AIG was weak on the tape.  And it was easy to get hit on the bid and hard to get shorts on the offer.  The next significant long term support level after I started trading it was 30.

31.50 became an important intraday level.  31.51 kinda held the bid and AIG spiked to 32.  But then AIG found 31.50 again and all the fun began.  The first momentum trade below this level did not work.  No worries.  I have nothing else to do.  Maybe the second time?  Nope.  Again no big deal.  My SEED was not really moving much so AIG had my attention.

Finally I noticed something different on the tape.  31.50 offers were not getting cleared as they were before.  And then 31.45 was not lifting the offer after 31.43 did some unusual volume for such a punk level.  I got short.  This was a Trade2Hold.  This trade really worked.  What is that saying? “If at first you don’t succeed…..”  Anyway, Chop!

So I am back in the AIG game.  Didn’t necessarily want to be but these things are not always up to me.  Mother Market decides and my job is take what she is offering.  On this light volume, hang over holiday trading session, it was all AIG, all the time.

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