Table of Contents
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To my Mom and Dad for their unconditional love.
Copyright 2010 by Mike Bellafiore. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Bellafiore, Mike.
One good trade : inside the highly competitive world of proprietary trading / Mike Bellafiore.
p. cm. - (Wiley trading series)
Includes bibliographical references and index.
ISBN 978-0-470-52940-9 (cloth); ISBN 9780470648971 (ebk); ISBN 9780470648988 (ebk); ISBN 9780470649008 (ebk)
1. Speculation. 2. Derivative securities. 3. Investment banking.
4. Competition. I. Title.
HG6015.B.64-dc22
2010005945
Preface
As the U.S. financial system neared the verge of collapse in the fall of 2008, a 23-year-old prop trader I know was about to pocket $30,000 for a days work. Rewind to 1998 when some twenty-something prop traders, discards from the big banks, were putting away more than $10-25,000 a day without charts, CNBC in the background, a newsfeed, or even air conditioning. So what happened between 1998 and today? The Internet Boom and technical advances caused an explosion in proprietary trading but there was never a book written about it. Now there is.
During the past four years I have been growing a prop trading firm with my childhood friend, Steve Spencer. We started with nothing (not even a phone) and today our firm, SMB Capital, employs more than 60 traders. One Good Trade offers all the important lessons the market has taught me over the past 12 years in and around prop trading. I share these market lessons while introducing a cast of characters, some of whom have succeeded, and too many who have failed.
We will start with a look at traders to be emulated like MoneyMaker in Chapter 1, whose previous career as a professional golfer left him with a superior ability to focus, which he now uses daily to chop up the market. You will go inside this previously closed world of prop trading to learn who gets hired (classic Joe Biden story enclosed), how we trade (depends on the market), how we find the stocks we trade (you are only as good as the stocks you trade), our game-changing market fundamentals (One Good Trade), and our superior trading skills (Its called trading!). You will garnish a savoring taste of what is really important to become a successful prop trader.
Trading is about skill development and discipline. Unfortunately, too many people think trading is just about making predictions, loading up, and being the man by holding stocks (you will meet Crabby, who predicted the whole run in oil and never made a dime as a trader). Being a consistently profitable trader is about doing the thousand little things every day - like proper preparation - that impact your P&L.
As the partner of a proprietary trading firm, I spend a great deal of my time teaching. While I still trade actively, I am mostly a trading coach. What I teach my students and have learned from my traders I will share with you. Lessons like the importance of adapting which one experienced trader, Point-and-Click, was unable to do; he now sells insurance in New Jersey.
The light I shine on the world of prop trading will include my mistakes and those of other prop traders. A great trader is an elite performer. Elite performers spend every day trying to improve. Every day we trade is an opportunity to learn from the market. My mistakes and those of other prop traders are just gifts from the market for us to improve, and they will be shared so you can learn.
My firm, SMB Capital, will be used throughout this book as an example of how prop firms operate. SMB and its traders have been featured in the TV documentary Wall Street Warriors, appear regularly on CNBC, and have four regular spots on StockTwits TV. Its an entertaining place! Many of the learning experiences and anecdotes in this book come from my tenure as partner.
Too many traders do not know the stocks to trade and we will discuss how we find the Stocks In Play. Too many new and developing traders cannot Read the Tape and we will argue how that hinders their results. Most importantly, I will walk you through this P&L-changing skill.
After a speaking engagement, I was approached by Dapper Don to explain the value a prop firm can offer and I spend a chapter answering his question. I will debunk the myth that a new trader should seek out a superstar trader to learn best. Many new and developing traders could improve their P&L if they just understood how to Score, and we will illuminate the importance of loss limits, ending a trading slump, and keeping excellent trading statistics.
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