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Making One Good Trade With Mike Bellafiore
In the Spotlight | 08 February 2012
By: Xavier Lim
Articles (51) Profile
By: Ong Qiuying
Articles (131) Profile

In an interview with Shares Investment (Singapore), Mike Bellafiore shared with us his trading experience, principles and tips on successful trading. Bellafiore is the co-founder of SMB Capital (SMB), a proprietary trading firm in New York City, which has been recognised for its outstanding intraday equities training program.

Having traded his own account professionally for more than 15 years, Bellafiore has translated his experience in trading into the “trading classic” One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading) and is also writing his second book for FT Press, The PlayBook.

Shares Investment: Tell us more about your company and what makes it successful in capturing market opportunities.

Bellafiore: SMB Capital is not only a proprietary trading firm, but also has a trader education company, SMB Training, which helps new and developing traders globally build their trading foundation in all products, including systems trading, utilising the principles of elite performance.

Each morning at SMB, we hold a morning meeting to discuss the stocks most In Play, which we focus on for the day. These are stocks that have fresh news. After all, you are only as good as the stocks you trade. Trading these stocks allows us to identify more intraday opportunities, to be most efficient with our capital, find stocks that are more liquid and to size up responsibly.

SI: In your book “One Good Trade”, you shared about your experience in your trading career. Can you tell us more?

Bellafiore: There is nothing to get as a trader. There is never going to be a time when you have mastered the markets. Trading is like golf in that you always strive to improve a facet of your trading game. I shared how I have changed my trading style over six times in my trading career as that is just the opportunity to improve and adapt so you can thrive in the next new market that rewards new patterns.

SI: What are some of the common pitfalls for new traders?

Bellafiore: There is a code to becoming a successful trader.

  • Domain Knowledge – Read everything you can about this game called trading.
  • Mindset – Work at your craft each day with an emphasis on learning and improvement.
  • Coaching – There are few examples of anyone becoming great at anything without great coaching.
  • Purposeful Practice

Becoming an elite trader requires you to embrace the principles of elite performance. Turn one trading day into ten so you develop the trading skill of a professional trader.

New traders should note that trading is not about making money. It is about learning to be your best you. Trading is a game of elite performance. And to succeed, you must improve as an individual.

I sat in my office in New York City talking to an ambitious, bright and passionate new trader, Candyman. He was one of my favourites, yet quirky. He subsisted on candy and trading. Candyman was underperforming. Why? He was not patient with his trading. Why? He was an impatient person. When Candyman was in a big position he was so amped he would actually stand and bob his head up and down with the movement of the stock. Once he stood up so quickly he choked himself on his headset.

Trading shines a bright light on your personal weaknesses. So I asked this trader how he might improve his impatience as a trader. He responded, “Go for long walks in Central Park.”  It seems strange but yeah, this is a great first step.

SI: Can Singaporean traders capitalise on the US market?

Bellafiore: Of course you can! Technology offers the ability to trade US markets even from Asia. For example, we have trained numerous traders from Singapore to trade the markets. The best worldwide traders in the future will develop a PlayBook and then look to trade these patterns across all markets.

In US, options trading have become increasingly opportunistic. Spread options traders can sleep through the night and still control their risk.

Developing trading systems is the hottest growth area in US trading.

SI: You’ve been trading for 15 years, what advice can you give to traders who wish to be successful?

Bellafiore:

Be Prepared – The legendary John Wooden, former UCLA basketball coach, said, “Failing to prepare is preparing to fail.”  The market will eliminate those who do not properly prepare.

When Polypore International (PPO) went from $54 to $37 intraday, I heard an anecdote from a risk manager about a trader who has suffered US$3,000 paper losses, but was still adding to his position at $47.  When the risk manager closed out this trader’s position, the trader responded with a nasty email. PPO traded down another 10 points and would have blown up this trader’s account. Interestingly, that trader did not send a follow up thank you email.

Defense First – Live to play another day. “The markets can remain irrational longer than you can remain solvent,” said British economist, John Maynard Keynes. With every trade, your downside should be 1 with an upside of 5. Meaning to say, before you enter every trade, you should determine your exit if a stock turns against you. If you are sitting on my trading desk, an exercise I like to practice is to tap you on your shoulder and ask where you plan to exit. If you cannot respond instantly, then you are kicked off the desk for a period of time.

Adapt – Previously, I mentioned how I have changed my trading styles in my career as a trader. One needs to adapt and improve to new changes and markets in order to thrive. It is a constant journey of learning and adapting as you cannot master the market.

SI: You have an upcoming talk “Trade with Confidence”. Would you like to share with us how traders can build confidence in their trades and trade effectively

Bellafiore: SMB’s trading psychologist defines confidence as resilience in the face of disappointment. Trading is not about being right. For too many new traders, trading is about making money but for an experienced trader trading is about controlling your risk.

At our trader education company, SMB Training, we teach new and developing traders how to trade US equities, Options, FX, Futures.  And we teach traders how to develop trading models/systems. We mentor our students to make One Good Trade and then One Good Trade and then One Good Trade.

One Good Trade is one that has the 7 fundamentals present in each trade. These 7 fundamentals are:

1. Proper Preparation
2. Hard Work
3. Patience
4. A detailed plan
5. Discipline or executing your plan
6. Communication
7. Review

So, if as a trader you are focused on the process, this helps avoid the disappointment that can come with results. You cannot control what a stock will do. Your job is to place good risk/reward trades. Your job is to make One Good Trade!

For all traders interested on how to trade with confidence, find out more at Bellafiore’s seminar on Saturday, 18 February 2012, at the Suntec Convention Centre.

Details are as follows:
Date: 18 Feb 2012 (Saturday)
Time: 12:30pm to 7:00pm
Venue: Suntec Convention Centre, L3 room 325 – 326
Other speakers: Robin Ho & Joshua Tan
Event webpage: http://bellafiore-sharesinvestment.eventbrite.com/
This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.


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