A Point of Clarification

We teach our traders/trainees/community to start thinking about the markets as we do. We make decisions based on three factors: Reading the Tape, Intraday Fundamentals, and Technical Analysis. We ask our desk to find the Stocks in Play. We ask our desk to trade intraday. It is our belief that this is the best way for a new and developing trader to start their career. Why?

1) You trade a lot which builds skill.
2) This is a responsible way to start as your downside is manageable. Too many start in a huge hole at the inception of their career. This makes no sense as this is them at their worst.
3) This is the best way to build a trading foundation as you learn how to prepare, review, size up, find plays that work for you, psychology, Reading the Tape, Technical Analysis, etc.

SMBers are learning to attack the markets in a professional way and as a professional. Along the way, we will expose you to new ideas. Hence the guest speaker series with Brian Shannon and Corey Roosenbloom and Dr. Phil Pearlman and Dr. Steenbarger and Joe Fahmy and Josh Brown just to name a few. Soon we will expose our desk to T3’s technical analysis active trader manual/seminar. Ideas about moving averages, longer time frames, entries and exits based on candlesticks, and much more will be offered. Also, Adam Grimes will expose some trainees to advanced technical analysis principles.

Exposure to these new ideas should be viewed in the context of you building your trading base and keeping these ideas in the back of your head for further gains. First comes you building your base. And then you will take your developed intuition and creativity and add to this base creating your best way of attacking the markets.

But being exposed to these new ideas does not mean be like them, trade like them, copy them. It does not mean “oh smack” I do not do what those guys do so I must tomorrow. It means these are their ideas shared to help you build that stronger base for you that perhaps you can make your own. But let me be crystal clear: if you do not make these ideas your own then they cannot work for you. Co-opt an idea and make it your own. Do not just think you can copy. And do not make the mistake of seeing someone else who makes more P$L than you and concluding that their way is the better way for you. It doesn’t work like that in our game.

It means maybe in time after you build your base you will take new leaps forward expressing an idea from our guest lecture series or continuing education. It means maybe you can co-opt an idea, make it your own and build a stronger base for you. The equation is this:

Building your base + your intuition + your creativity = your best trader.

I hope that helps. And on this train ride out to LI to spend a weekend with my dad, please free to ask clarifying questions. Have a great weekend.

Mike Bellafiore
Author, One Good Trade

12 Comments on “A Point of Clarification”

  1. I had something that worked for me, but I have lost my conviction because of listening to too many other people. The more I trade, the more my emotions get in the way, and all I learn is that everything I think I know is subject to change. Computers have changed the way stocks prices react to patterns so that you cannot predict what people will do, so much as you must now attempt to figure out how the computer is going to try to screw the herd, and ride it’s wake?

    I have often times wondered if your rec of the morning makes a good target for powerful contrarians guaranteed a fresh supply of weak hands, and yes, I’ve wondered if that was in fact SMB capital. Not only were GMCR and SODA GREAT shorts, but they were some of the best of their rec.d days (rec.d as longs, made championship, killer shorts), and I don’t believe it is a coincidence.

    Weak shorts make $NFLX so strong, and what better way to corral a bunch of weak longs than to offer a rec for the day, creating a possible easy takedown.

    I do not know everything, and the scale of influence of investment firms is not an area where I have expertise. I just think if somebody was going to be able to decipher this market, it would be those that have written books, blogs and have proprietary trading firms. That is why I trusted your recs 2 days in a row, and those just happened to be the worst plays for those days, and those days just happened to be critical for my trading, which I can no longer do because of the damage to my account.

  2. Bella-

    Contrary to the previous post, I just wanted to say thanks for the SMB training blog. As you discussed in this post, I read the blog and seek to learn from it, not just blindly copy it. So I read the play of the day every day, and look at the charts and the news and try to learn why you guys are on this as your play. Then I can look for similar situations in other stocks that meet my other set-ups. Anyway, long story short: Thank you very much for all that you do!

  3. No response= “we were in fact short GMCR and SODA” ? Just wondering… Also, which days do I fade your rec? Thanks.

  4. I think you figured it out, SMB cap is controlling the market.

    Interesting how 2 trades destroyed your account. I think youre focusing on the wrong issues here bud

  5. Barberosa,

    You should not have money at risk in the market. I can see the distress in your comments. Step back from the market and study, practice, and prepare mentally to be in a position to trade again. never trade with money you cannot afford to lose.

    in the case of SODA that you reference above the ideas was to be long if it was HOLDING above 47. It never even traded above that level so was either a no trade or a short….

  6. Barberosa, You should never risk money you cant afford to lose. If you think trading is the same as investing, you are sadly mistaken. If you are in a trade that is “critical for your trading” , then your size is way too big. One or two bad trades/days/weeks should NEVER bust your account…

  7. Seriously Barberosa? You know what your post sounds like? You’re blaming someone else for your trading failures! Where were YOUR stops on these trades? How do you blow out your account because of the damaged caused by just these two trades? If you’re looking to get rich off of someone else’s calls then you’re not trading, you’re gambling. I look at SMB calls on a daily basis. Sometime I take them, sometime I don’t and sometimes I even do the opposite. Whatever I choose to do with their calls is based on MY trading style and within MY risk parameters. If a trade SMB calls goes against me, I look in the mirror (ok the charts actually) and figure out what I did wrong not them. It’s SMB Training not SMB Stock Picks That Will Make You Rich.

  8. Bella, thank you so much for your posts. I have been trading for a few years now and can’t agree more. The information people provide like Brian Shannon, etc. are just a start. In my experience you have to take all the information learned from other people and ” and make it your own”. Otherwise it just doesn’t work. Great advice.

  9. Barberosa,
    The way I look at stock recommendations on this or any other site is as a spotlight on a stock, saying it will probably be in play and is worth looking at. I will note the bias of the call but will never take the play unless I like it myself and it “looks right” to me. Also, Steve Spencer did respond to your comment. If you don’t read this site enough to know that he’s one of the leaders of the firm, you definitely should not be taking calls from them. Site’s like this, newsletters, blogs, and even fellow traders can be a great source of In Play stocks and market ideas, but blindly taking calls is a way to protect yourself from blame or failure because it was now the fault of whoever recommended the play. You create a scapegoat to protect your own psychology. Ok, done ranting… I’ve got a trading day to prepare for. .

  10. Sorry. Didn’t get much sleep the night before I wrote this comment, and I was really mad at myself, but had not realized this fact. I don’t actually blindly take these recs, so much as try to make them work for me, and that did not work. I take the blame for my stupid trades. Everyone who is getting on my case here is right, I don’t really have a leg to stand on. My apology to SMB.

    Yes, I have bad risk habits. Yes, I’m trying to make back money and it is driving me crazy. Yes, I am trying to convert to an open minded trader from a pure bear, and at the worst time ever. Yes, I’d probably be better off taking the money I might put in my account and go on a vacation.

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