Thanks for a great job on the blog. Also love Mike’s book.

I just left a prop firm where i could only scalp Eurostoxx 50 futures (like dax or S&P500 futures) to trade stocks in play for my own money, since there are almost no props here trading stocks.

I live in Stockholm (Sweden) and the Nordic equity markets are not yet that “algorized” which also makes me beleive I will have a bigger edge trading the equitys.

Im a tapereader so when I focus on a stock I usually get a idea of what it is doing, but the problem for me is where to place my focus since I suddenly have so many options.
I am trying to find 2-4 stocks in play, but I find it hard know where to place my focus since there might be other plays that I miss, on for example my B list.
How do you guys do it? do you only focus on for example one or two stocks and dont care about the rest?
You of course have the luxury of having more eyes on the screen, but I was hoping you have some recomendation for me since my focus is shattered between all the opportunity around me, making me miss the trades in front of me!!

Do you work with some mindset, rules or method around this problem?

Bella Responds

Great question. Terrific question identifying an area you need to improve. Love how you are working on your game here.

Develop a Trading Road-map before the open. Before the open visualize possible trading scenarios. Identify the set ups that make the most sense for you. Actually rehearse how you will trade the open.

Prepare you mind to be ready for the best set ups for you. What is the stock(s) that are best for you. What are the best prices? What are the best set ups? Visualize the plays you most want to be in with your top ideas. Consider your third, fourth and fifth stocks. Where would you really want to be in with them? What set up? Consider if my third stock is at this price under what conditions will you leave my primary stock.

Rehearse the open. This will help you focus on the best set ups and stocks for you.

Keep working on your game. We all have areas of weakness. There is always a solution. With practice and work comes improvement.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading

Look at the chart above.  Say you shorted RIMM below 45 and got stopped out at 45.16, develop a reason for this loss and then continue reading.

Ok great to have you back with us.  Today during a teaching session Bad A$$ Mike shared a trade he made on the Open getting short RIMM below 45.  Steve whispered in his ear before the opening bell that 45 was a big level and it had downside potential.   Bad A$$ Mike had other ideas but he flipped to Steve’s right before the open.   He shorted below 45 and got stopped out.  Reviewing his work, the subsequent two points of down and frustrated he concluded,”I didn’t give RIMM enough room.”

I rose from the back of our training room and sauntered to the front.  ”That is not why this trade did not work,” I challenged.  Then I asked a series of questions to our traders to elicit the real reason why this trade did not work for Mike.   I will offer the cliff notes version.

1) Bad A$$ did not evaluate the importance of the 45 level for him.  I asked him on a scale of 1-10 how important the 45 level was for him and he had no answer.

2) Bad A$$ did not know that there was fresh potentially negative news with RIMM.  I asked him if there was fresh news in RIMM and he claimed there wasn’t.  @vontrading corrected him.

3) Bad A$$ did not consider how weak or strong the overall market was.

4) Most importantly Bad A$$ missed the best short which was below 44.80.  RIMM went above and below the level but then finally broke this pattern.  There is a subset to support plays.  One is shorting when a stock breaks its range below and above the level.   Know your subsets.

Bad A$$ did not have a feel for the Big Picture with this trade.   And he missed a subset of a support and resistance trade.  But this had very little to do with his stops and had everything to do with his process.   When you reflect on your trading get the real reasons for your losses correct.  This will help you make the necessary adjustments so you progress.  Finally the answer is not always wider stops.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading

Every trader must see their big picture.  At SMB we make trading decisions based upon three factors: Reading the Tape, Technical Analysis, and Intraday Fundamentals.  We teach our traders to think of a big circle with each of these factors inside.  How do you determine your big picture?

Today during an informal discussion one of our new SMB Training traders, let’s call him Smooth, asked about a trade we make based upon Reading the Tape.   I asked the room to take a step back and remember the big circle.  Understand the context of this question.  The question was about the prints which we use to determine the strength of the tape.  So keeping our big picture in mind this was a question about a slice of a slice.  A part of our decision making is the tape and a part of determining the tape is the prints.  So we would only make a trading decision relying on the tape if it so clearly told us to buy or sell.

Most traders make trades based on technicals.  Ok great.  But what is your circle?  How about considering long term market technicals, intraday technicals, and the technical of the sector?  Couldn’t that be your circle?  So if the market is extremely weak and you want to get long a stock based on just intraday technicals you better have a very clear signal from your intraday charts. Remember the big picture please.

Let’s say you like to invest based upon fundamentals.  Terrific.  But what is inside your circle?  Perhaps you could consider the fundamentals of the whole economy, the fundamentals of the sector your investment is in, and then the fundamentals of your stock?

What is inside your circle is not as important as you are considering the big picture. To make excellent trading decisions requires you to determine your big picture.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading

Reader John asked:

Mike,

I just got done reading your book and I loved it. I thought it was the best trading book I have read. I have been a full time prop trader for 6yrs. and read a lot of books and found yours extremely valuable and enjoyable. Your book spoke directly to me as a very active prop trader. Thanks.

I am interested in recording my level 2 and screens in order to review my trades after the close. What software do you use to record and watch your screen shots?

Bella Responds

Our new traders record their trading. Then they watch back their trades during the midday and after the close. Also we watch film together in our training room, which we call SMB Tradecast. We do this so our new traders gain screen time. To get better as a trader requires more screen time so recording your screens is an excellent way to speed up your learning curve and move forward as a trader.

I use My Screen Recorder software. Others on our desk use Camtasia.

A few things. You will have to play around with which is best for you. Some computers slow down when these softwares are added. So watch your CPU after your add. Second, watch your tape religiously. The hardest thing about becoming a consistently profitable trader is becoming a consistently profitable trader. Meaning trading is not that hard save for those who are not consistently profitable. There is a learning curve that we all have passed. It is a trading right of passage. Anything you can do to speed your learning curve will improve your chances of success. This is one very valuable training technique.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

We make trading decisions based upon three factors: intraday fundamentals, Reading the Tape, Technical Analysis.  I traded MDT today using all three to start two shorts.  These are trades that if I made 1000 times I would profit.

Intraday Funamentals

We trade stocks with fresh news.   Today we had new news with MDT:

Co issues downside guidance for FY11, sees EPS of $3.40-3.48, excluding non-recurring items, vs. $3.48 Thomson Reuters consensus. For FY11, based on estimated market growth of 3 to 4 percent, the co expects revenue growth in the range of 2 to 5 percent on a constant currency basis, down from 5-8% previously.

Missing on revenues is more important than the bottom line generally. When a company offers fresh news that its revenues for the full year will be worse than expected this is a candidate to finish at the low. This fact alone can cause the stock to trend cleanly and negatively for the entire day.

Technical Analysis

MDT gapped down to near 32. To find the next support level you must use a 2 year chart to find 30. On the one year MDT was below all support.

On the Tape

On the Open 32.20 held the offer showing an aggressive seller. And then there was a huge battle near 32.

The First Trade

MDT moved away from 32 finally after a huge battle. It found 31.60, created a deep red candle on our intraday charts, and got us excited about to our short. 32.75 held the offer. This is a short. There is no support on the long term charts until 30 (maybe). Intraday the sellers have won the first two battles. The fresh news offers a potential pattern for MDT to close near the low. The trade is short 32.74 and hold until the intraday downtrend is broken.

The Second Trade

MDT traded weakly down to 30.85 after failing from 32. The market held the 1050 and 1040 futures level and bounced. MDT approached 32. Reshort is the play. When a stock has failed from a level, makes a sharp downmove and then later re-approaches this level we almost always re-short.

Those were two excellent risk/reward shorts in MDT today. If you have any questions or comments, please post on comment on our blog.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

Well its slow out there. This AM there were only a few stocks with fresh news. JAZZ was one of them. HPQ and the proposal of them potentially buying PAR was another. So I traded both. As I write I am also short BIDU. Let me share my thinking.

JAZZ
From Briefing.com:

Jazz Pharma shares trading 30% lower following Friday’s announcement that FDA voted 20-2 that the benefit/risk balance did not support the approval of JZP-6 (10.23 )

JAZZ gapped down from a close near 10 with an open around 7.55. 7.55 was tested aggressively but never dropped the bid on the Level II. 7.75 became another huge level but then JAZZ held above. As I write I am long. But 8 is a level on our long term charts and intraday as there has been significant volume done here. I do not know if JAZZ will trade higher or lower. But I am long till below 7.69, I will add more if JAZZ holds above 8, and I will short if JAZZ holds below 7.55. You could make a strong argument that I should be short from 8 waiting for JAZZ to crack 7.55 and find lower ground.

BIDU

80 has been a technical support level in BIDU. Today it found its way below 80 and showed some weakness on the tape. I started a small short position. There was a Tier 1 downgrade with BIDU but no news I would classify as significant. I have set a stop for 80.35-80.50ish. I will probably need SPY to trade below 107.40 for this trade to work intraday.

HPQ

This was my Play of the Day. One of our young traders was chirping short HPQ below 40, with a stop above 40.10. I offered and was taken starting a short position at 39.98. He was still chirping . I tried to add in front of the 39.80 intraday open resistance but was not filled. HPQ has reversed its intraday downtrend but with one lot I am holding since it is below 40. If I had gotten another lot at 39.77 I would have covered that 38.85 when it broke the intraday downtrend. 37.50 is a potential target for HPQ.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

Give me six hours to chop down a tree and I will spend the first four sharpening the axe. Abraham Lincoln

An extensive FX training program is being created for a college investment club as I write. The creator is a Junior in college. A bright young trader visited SMB for a Tradecast from the Midwest during a summer vacation. He had just graduated high school. I get an email every week from a developing trader who is killing the market this year. Not a month has passed without him netting 30k. He is entering his senior year at college. @zmoose12 has caught the eye of the best @stocktwits and will be attending Bentley college in the fall. One of the rising stars in the trading community and a young twenty something @ldrogen has been trading since high school.

We have learned from The Talent Code, Talent is Overrated, and Outliers that no one becomes great at anything unless they engage in concentrated practice for many years at their craft. Before the Beatles hit the States they had the unusual opportunity to play live for ten thousand hours. Before Bill Gates dropped Harvard he was a stud programmer because he had been coding for years. If you want a tongue lashing from me go ahead and sit in one of our film sessions with a month of experience and tell me you “just had a feeling the stock was going up.” If you want to lose my attention during an interview tell me that you have a good feel for the market, though have never placed a trade. We call this trading intuition. And you only develop it after years of screen time.

Tiger Woods started playing golf when he was two. Andre Agassi was starved of a childhood save hitting tennis balls. LeBron played more basketball before entering the league with AAU, camps and an ambitious high school travel schedule than some NBA veterans. Why do Newbs try and pick up our game without any experience, without any trading skills, right after college? How silly would you think LeBron or someone like him if he showed up at Danny Ferry’s office requesting an interview for an NBA spot without ever having played? How about Agassi knocking on Phil Knight’s door talking a Nike endorsement without knowing how to hit a backhand?

Trading is skill based. You must develop a playbook of trading patterns that makes the most sense to you. To become great at these set ups takes experience, practice and a love for your craft. Only then can you become First Team Wall Street.

Future trading stars should start trading in high school with small size and an emphasis on risk management. They should be scouring the blogoshphere for domain knowledge. They should laugh with an @thereformedbroker’s post, learn technical analysis from YouTube trading king @alphatrends, peak in at a prop firm from our SMB Blog, argue under their breath at a call by @DougKass, DM @afraidtotrade about the structure of a trading day, read every last post from TraderFeed to develop your mental game, or classics like Reminiscences of a Stock Operator (Wiley Investment Classics), and email trading pros like @thekirkreport trading questions (we will respond). They should attend universities with trading labs. During the summers they should study at trading education schools. They should dabble in different products and markets. They should intern at prop firms and institutional banks. Most importantly, they should develop a track record.

After developing a track record then you will have the power to pick where you want to trade, what you want to trade and how big and not have to rely on someone like me to let you in the door. And you will have developed your trading skills so you can become the next King on the Street.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

Coach Dungy’s criticism of Coach Ryan’s F bombs is silly. Great coaches are genuine, communicate well, set a standard of intensity, and teach their players that there is nothing the team cannot do together. This is exactly what Coach Ryan is doing with his language.

There is more than one way to be a great coach. John Wooden never swore and is considered the greatest college basketball coach of all time. Coach K is not shy to cuss yet is all class always. Bill Belichick is our football genius yet is the most boring speaker in any room. Coach Calhoun curses at not only his players, but the refs, assistant coaches, scorekeepers, reporters, and heck even his own AD. He built UConn from nothing to one of the elite basketball programs in the country. Yet all these coaches have one thing in common: they are genuine. When Coach Ryan drops an F bomb most importantly he is being Coach Ryan.

The Coach Ryan cussing is him as the coach DEMANDING a level of intensity from his team. “Go out there and hit them hard” does not communicate the same intensity required from a professional football player as “Go fu$king knock the fu$k out of those fu$king bastards till they know they are playing the JETS!”

The F bombs also communicate to his players I am one of you. I sat in on a trading lecture with one of the most learned, classiest, most respected trading coaches of the past ten years. This well-educated, proper, ethical superstar finished the first sentence of his talk with an F bomb. The admiring traders filling the room squirmed in their seats as this was so unexpected. But this trading coach was communicating. He was making a connection with the room. This famous coach was saying I am one of you. And the F bomb was his way of doing this.

The Jets lacked confidence before Coach Ryan entered stage right. He talked about winning a Super Bowl when the Jets stunk. Football fans reading his predictions reacted,”Who the hell is this cocky new Jets coach? The Jets stink.” But his language led the team to fear no one and expect greatness. Now the Jets are expected to win the Super Bowl. He created a standard of excellence through his intense language.

Coach Dungy was a great coach. If you are a spiritual person or interested in coaching go find his book, Quiet Strength. You can see why he was so successful. He was genuine. Not cussing fit everything else about his coaching. The light hours to spend more time with his family. The insistence in discipline expressed on the football field by winning the battle of turnovers each game. The precise execution demanded from his offense. An F bomb would have been out of place for him. But none of this would work for Coach Ryan.

Now if someone wants to take a shot at Coach Ryan for indulging too much at Cafe Ryan, well that I cannot defend

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

About two hours ago I tweeted: $CREE near 60 huge R level
@biggercapital responded: would like to hear your what if scenarios RT @smbcapital: $CREE near 60 huge R level
And then came @readerfinance: would like to hear your what if scenarios RT @smbcapital: $CREE near 60 huge R level: would like to hear your what… http://bit.ly/dodYtu

At SMB we make trading decisions based upon three factors: intraday fundamentals, technicals, and reading the tape. 60 was a significant technical level for us. CREE could not close below 60 since the start of the year. And then it did. Important support that is broken becomes resistance. And so 60 became an important technical resistance level for us.

Now trading is not get short at a level and hope for the best. If it was this blog would not exist nor perhaps my firm. CREE was nearing 60, this technical level, but how do we trade it. What were our if/then statements for this opportunity?

Now let me say that I was not crazy about the fact that CREE had recently blown through another important technical resistance level of 57.75. Let me add that there was nothing on the tape that showed weakness as CREE found 60. Also, SPY above 109 makes for a strong market of late. Finally my thesis for shorting 57.75 was that CREE would turn from a growth stock to ordinary with potentially a much deeper decline imminent. Didn’t happen.

But this was an important technical level. So I shorted the level. For me this was a short one lot, cover half into a downmove to 35cish and then hold the rest. The cover is above 60.35-60.50 depending on your trading time frame. I would have added more and held longer if the tape confirmed the weakness at 60. We didn’t really get that. CREE failed from 60 but I didn’t see the battle, the brick wall at 60 of selling, and then the seller stepping lower that would have gotten me to add size. Also the market is still holding its head above the $SPY 109.

So I made the trade. If I make this trades a thousand times I will make a profit. That is how I judge my trades and not whether this one trade will work. I will make a profit in this CREE trade no matter what the result now as I covered some 31c, 26c, and then into the whole. I will hold the rest till I am stopped out most likely. As of yet I see no reason to sink my teeth into a huge short but that can change depending upon my observation of the market and stock.

I will discuss this trade via video with our SMB Trade of the Week on the NASDAQ app for the iPad and StockTwits TV and post the video soon.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)

“I never think that there’s something I can’t do, whether it’s beating my opponent one on one or practicing another hour because something about my game is just not right.”
Earvin Magic Johnson

Hey Bella,
Hope you are enjoying this gorgeous weather! I know you are probably being bombarded with e-mails because of your new book (which I am very much looking forward to reading) but I had a question. I know a large majority of intraday traders make most of their $ trading on the open and close. I have compiled a spread sheet of my stats from the last few months and have noticed that I actually make the least amount of $ on the open & close and make the most during mid day. Is this unusual? I know some traders who put on huge size trying to catch opening drives. This is not my strength. It usually takes me 30mins – a few hours to identify the best stocks to be in. One of my strengths is being able to fade. Most of these fade trades come late morning/mid day for me, and I am particularly good at catching these counter trend moves. I have included my stats for time of day here . What would you recommend I do to improve my skills for trading the open and close? Thanks in advance Bella!

Bella Responds:

If I had a nickel for every time one of our new traders asked me this question…… This is an important question one not discussed to my memory on this blog. As way of background this question comes from an independent trader just killing it this year. A guy totally stepping up his game to become one of us.

We become better as traders by measuring our best set ups and trading them with more size more often. On the other hand as traders we need to push ourselves to constantly get better. And we should seek to become well rounded traders. What works one month may not work the next. It is entirely possible that a future month may be only opening drive plays of opportunity.

This reminds me of a Magic story. He was a world champion. All NBA. NBA MVP. Over the summer he worked on a new hook shot. Shot hundreds everyday. And then in one game against the C’s he buried one to propel the Lakers to yet another championship.

To be a great intraday trader opening drive plays should be mastered. Trade them with very little size. Work on controlling your risk. Go search this blog as I know we have discussed many excellent opening drive patterns. Develop a playbook of these set ups that make sense to you. Focus on what you do best but try and add this play slowly to your playbook as another trading weapon.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)