What I learned from visiting SMB Capital

Here’s a guest blog post from Austin Mitchum, an active writer on his blog A Technician Plays that Market……….

I have just returned from a very special holiday in New York. Whilst there, I was fortunate to meet with Mike Bellafiore (Bella), co-founder of SMB Capital and author of “One Good Trade” and “The Playbook”. SMB is a proprietary trading firm with a major focus on developing and training traders. They offer a wealth of information on enhancing trading performance which can be found on their blog: http://www.smbtraining.com/blog/. I read their work religiously and find it immensely insightful. It is for this reason that I sought out Bella on my recent trip.

In this post, I thought I would write down and share some of the insights I gleaned from Bella and one of their new traders whilst over lunch:

1) Network and share your experiences: We are all busy in our day to day schedule and we often get glued to our screens as traders. However, there are ALWAYS multiple opportunities to reach out to others in a meaningful way which is truly enriching. To me, networking is about building relationships that are mutually beneficial; it is about sharing and learning from other people’s experiences; and it is about taking enjoyment in other people’s company. In a performance field such as Trading, such networking can rapidly increase your learning curve. You have to be open to continue to succeed in this game. I feel it is important to stress that networking is not about self-aggrandizement – Twitter, LinkedIn and other social mediums all get exploited these days for such egotistical purposes. I get the overwhelming impression from Bella that he reaches out to others because he is tapping into a purpose that is larger than oneself. By this I mean the desire to get better, the pursuit of excellence, the training and building of a community of like minded individuals. His passion for trading is contagious.

I am part of a online trading community where we constantly communicate, share what we are seeing and reflect on our experiences. No doubt I could do a better job at building on these relationships in a more meaningful way. What are you doing now to network and improve? Write an email, pick up the phone and go and meet someone who inspires you. Don’t just sit there and look at Twitter. If a busy man like Bella can take the time out for lunch to chat to traders like me, than I am sure we can all find time in our own days for similar ends.

2) Define your edge. The first question Bella asked me was – “what is your edge”? I have written extensively about my method and edge with an example illustrated here: http://www.technicianplaysmarket.com/i-am-a-trend-follower-shoot-me/. Simply, I use pattern recognition and price action to follow global trends on a stock level in Australia. I believe in momentum and joining the strongest stocks. My holding time can be anywhere from a day to a couple of weeks based on the unfolding price action. It has taken me a long while to form this edge and method through constant screen time and application. The key point to make is this – my method is NOT the right method or edge but one that works for me. You have to form your own edge that suits your own style, comfort level and circumstances. SMB day trades with a focus on stocks in play and this is what works for them. They have built training processes and systems to enhance this edge. This leads me nicely into my next point.

3) Know your strengths and build processes to focus on them. SMB has built a number of automated tools and scanners to enable their traders to filter the market and focus on their best setups. In this way, traders are able to focus on their strengths and the opportunities where they really make their money. Furthermore, via their journals and morning meetings, traders are detailing their playbooks and sharing their experiences. All this builds repetition and increases learning processes. For me, I focus on momentum plays and stocks making new highs. Thus I need to make sure I am building tools to maximize my edge and focusing on stocks that fit my criteria.

4) Look for opportunities to get size on. It is by exploiting low risk/high reward trades with size that will make all the real difference at the end of the day. Think about what you want to see in the stock ahead of time to make you want to add size. It is not about recklessly getting big in a stock but finding the price action that tells you the timing is right and now whilst also offering a suitable stop loss.

5) Success takes time. SMB is on track to have their best year yet. The recent volatility during August played right into their hands and they were in the right place at the right time to capitalise. Yet there were many steps along the way to get into this position. All the small incremental gains, processes and training stacked up. This took 10 years + to build and it was a long journey. The message is clear- don’t expect overnight success. You are going to need a lot of screen time and experience before you can consistently make money and hit true peak performance.

6) Wait for confirmation from price action. It is often tempting to buy into a sharp sell off to “pick a low” or to short into a rip to “catch the top”. However these trades are fraught with danger and often lower probability or profitability. Firstly you are fighting the momentum and the flow of money. Secondly, if buying into a sell off, one is likely to take profit on the first small snapback given the severity of the previous decline. Thus they are not very profitable trades. The better trade is to wait for confirmation, wait for a higher low to form, and to get set once momentum turns back to the upside. This is known as trading the “backside” of the trade rather than the “frontside”. You want to see information from price action to tell you the timing is right and now.

7) Consider mentoring and pairing up with other traders. At SMB, senior traders sit right next to junior traders and they operate as mentors. The initial financial incentives for doing this are minimal yet the senior traders strive in this role and gain much bigger rewards down the line. It makes the seniors accountable to their colleagues and as such enforces discipline. It ensures best practices. It can also be mutually beneficial with traders working in teams and each member having a vested interest in the well being and performance of others. For the juniors the benefits are very clear- they get to interact with professionals in real time and get to see their profitability. There are many traders who conduct their business from the confines of their own home. However, I believe they could enormously benefit by seeking out team environments or buddies. I am very fortunate to work at a prop firm with talented individuals yet I could do more to work as a team with my colleagues.

8) Get the apple salad with blackened chicken. Bella ordered it. I didn’t. I have regrets.

Thanks

*no relevant positions

One Comment on “What I learned from visiting SMB Capital”

  1. Lucky you …. getting a chance to lunch with Bella and his colleague. Till about a month ago, I thought that I was progressing well as a full time professional trader with more good trades than bad. Then I discovered (and read, and am re-reading) One Good Trade and The Playbook. The mammoth opportunities for improvement make my skin tingle ! Many parts totally resonate, and am looking forward to practicing many of these tools to help me get better in the months ahead, including a Daily Playbook and preparing a Big Picture. I live in India, expect to travel to NYC next summer, and will certainly write to Bella seeking some face time. And if I do get an appointment and it is over lunch, I shall certainly learn from your mistake and order the blackened chicken :-).

    Have a good Sunday, Austin.

    Cheers,

    Subrat
    [email protected]

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