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@mikebellafiore
How to invest/trade the cannabis/pot stocks: Todd Harrison visits our trading desk
Todd Harrison, founder of CB1 Capital, a long-short hedge fund investing in the cannabis/pot sector, visits our desk to discuss trade opportunities in the sector. Todd has been near first in advocating that this sector is ripe for substantial growth. Learn more about trading opportunities in this sector from the go-to trader on the street in this space.
A powerful and effective trade during earnings season
In this video Mike Bellafiore teaches a powerful and effective trade during earnings season. The step by step method for how to spot and trade this setup will be revealed and with a recent trade example from our trading desk. Get a peak into the trading done on a professional proprietary trading desk in this video.
How to use technical analysis more effectively with a trade setup from our prop desk
If you want to improve your trading results using technical analysis, using charts, you don’t want to miss this video.
In it you’ll learn what is essential to make quality technical trades. Along with the step-by-step details of a proven and powerful technical setup that helped one elite 7-figure prop trader find the next level in his trading.
For those of you want to use technical analysis more effectively, we hope this video by Mike Bellafiore, Co-Founder of SMB Capital, helps.
The formula for how to become a 7-figure trader
Here is a link to my recent Chat with Traders podcast with Aaron Fifield. Aaron gives our follow up chat together the title: The formula for how to become a 7-figure trader.
@Maoxian does a solid job providing notes of the podcast here.
I love the @DGillies tweet after his listen:
That podcast gave me hope. My expectations are now in alignment with reality.
Posting a Daily Report Card online, role modeled by @AustinMitchyblu, is gaining traction with traders like @Doy5Trades:
Listened to @chatwithtraders interview w/ @MikeBellafiore
Love the idea of the report card. Going to be doing this going forward. Great interview
I am grateful that the podcast has offered value to the trading community for traders like @ScottMacks:
No setups, no entries, no methodology, but gold throughout. Don’t pass up these vital points: 4:10 6:50 14:00 18:40 20:50 26:00 28:10 35:40 61:10
Heck listen to it a few times like @FunTechalyst suggests:
Thanks very much. Certainly a highly valuable interview. Mike providing a great practical tips to develop and grow as a trader. Must listen to few time while making notes on the way….. Thanks Mike
Chat with Traders has become a wonderful resource to the trading community. I appreciate the opportunity to share some of our work at SMB.
*no relevant positions
*I am away this week in Disney World with family. Trade well.
Does trading Stocks In Play create automatic edge?
I received this question from a reader in the trading community…..
I hope this is not a dumb question…would you agree that a stock in play creates edge and hence puts probabilities in our favor just by the mere fact it is in play? I’m thinking of BLNK today and IMTE last week. When stocks like these two are in play, it seems that waiting for patterns or perfect setups is like sitting in a boat on a river full of salmon waiting for one or two to jump in the boat when all we need to do is just throw the damn hook in the water. Could it be that we are making it more difficult than it needs to be. What are your thoughts. Thanks in advance and thanks for the training blog…some great nuggets in there.
Bryce
@MikeBellafiore
Yes! waiting for patterns AND with Stocks In Play can create edge. I like how you are overlaying patterns to Stocks in Play to recognize edge. When you spot a pattern in a Stock In Play, that stock will very often move, as we say “far away from price”. Meaning our reward will be great, as when the stock starts moving away from a pattern it moves a large distance. So when you are wrong, you take a small loss. When you are right, you can catch a large move. Stocks In Play, with patterns, set up outsized risk/reward opportunities. What you are surmising as automatic edge in of itself.
On our desk, traders generally add another important variable- setups that make the most sense to them. I would advise even one more variable- patterns you have measured, for which you have edge.
A terrific formula would be:
Stocks In Play + patterns + patterns that make the most sense to you + patterns that you have measured to have edge = Edge.
As a trading coach, I would be remiss to leave out some other additional tips for trading with greater edge: study of your best patterns, sizing in your A+ trades, technology to spot your favorite setups, coaching and mentoring of your trading.
When we first started our firm, a huge part of what we taught was stock selection and preaching the importance of being in the best stocks. I made the argument for trading Stocks In Play in One Good Trade. As our desk has matured, what we trade has expanded. How we trade has grown. How we express our edge has become more sophisticated. But what a great place to start as a developing and new trader- Stocks In Play.
Terrific observation and thxs for the question.
*no relevant positions
Why we underperformed when volatility spiked
I thought we underperformed as desk, relative to the opportunity set, with the recent spike in volatility.
There is a general market principle that increased volatility brings larger PnL for traders.
Why did we underperform?
Most on the desk have learned to outperform in a low volatility market. I have written that 2017 was a year we outperformed our peers. Traders have developed a PlayBook that does well when volatility is compressed.
Also with enhanced volatility, the opportunity was in the hardest products to trade intraday- SPY, QQQ, UVXY, VXX. SPY is probably the hardest. So we were challenged to transition trading style AND do so in the most difficult intraday products.
Further, we mostly traded market products for Trades2Hold (intraday swing trades). We expressed these positions with stock and options. There were moments where we were very long the market and holding. The intraday and medium-term market was trending upwards and many were sitting with significant open PnL. And then headlines hit the tape that disrupted intraday trends- Syria, trade wars, Trump investigation.
Traders were stopped out of long positions, with steep drops, after these headlines hit the tape. These headlines were absorbed and then a new uptrend resumed. But traders had been shaken out of some, all, or most of their long positions or short volatility holdings.
Said better, the tape paid Move2Move market trading and we were Trade2Hold trading.
Having said all of that, we should have done better as a desk. We should have adapted quicker to the opportunity set. Our job as active traders is to trade what works in present market conditions. No excuses.
Now we enter a period where volatility has compressed. And we enter earnings season. We will wade back into Stocks In Play as a result.
My sense is while this experience was frustrating for traders and we underperformed, our desk improved dramatically. I saw traders on the desk structure trades with much more sophistication that will pay dividends. I saw traders better able to trade the overall market, using effective indicators for market plays and even building new tools to make trade decisions. I saw traders size up in market plays, handling more risk responsibly outside their core trading strategies, that will allow them to trade bigger overall. I predict this trading experience will spark higher profitability in high beta and large caps during this earnings season.
This is what we are seeing from our desk. I hope that helps.
Trade well.
*no relevant positions
A conversation with a firm trader to improve trading consistency
Often traders reach out to me seeking to improve their consistency both outside of firm and internally. One firm trader sought to chat after a frustrating month about this very issue. In his monthly review, he outlined this issue for which he wanted to chat:
OVERVIEW
I am ending the month carrying a lot of frustration. I feel I under performed given the opportunity that was available to me. My trading consisted of a lot of ups and downs, and the month didn’t really play out with the consistency that I would’ve liked. I also am taking a lot away from the month in terms of learning/growing/assessing in order to make next month better, so that is tilting the scales of frustration back toward a more balanced place. Coming out of the end of February, there were definite clear signals that I was getting sloppy in my trading, taking too much draw down in the mornings, and this continued into March. I managed to dig out on most occasions, but in the 3rd week of March, it caught up to me. In terms of my focal/assessment areas, I shifted from “sizing” and “managing losers” to patience and open mindedness. I deemed those 2 constructs were of higher priority to get me out my slump.
Okay so if you are like the trader above, you are not the first nor will you be the last to struggle with consistency. I hope that affords you some solace so you can work on a solution.
I suggested three areas of focus for this particular trader:
Develop a routine that you can finish presently each day. A routine followed daily will help you trade more consistently in real-time. Do not develop a routine unrealistic to complete daily. What can you commit to now that is necessary for you to trade optimally?
Did you improve today? Instead of focusing on your PnL, judge your day on whether you improved. The underperformance in PnL ignites frustration. And really what does that accomplish? Better to be working on what you must to improve and determine if you did.
Study the heck out of your edge. If you take 85 percent of your trades in setups with edge, it is very difficult to produce a frustrating day. One developing trader on the desk is shooting for 85 percent of trades within his PlayBook each trading session. When you are in an A+ setup it is hard not to be having fun. I submit even if those trades work against you, this makes for a day without much frustration.
*no relevant positions
This trader asks: Should I quit?
From time to time, I receive emails from traders, some I have never met, asking me whether they ought to continue their trading pursuit. Internally, firm leadership was challenged, whether it was best for some traders not improving at the firm to continue. Last month, a veteran trader, who was not making enough at the firm but loved trading, resigned to transition into another career.
So as you can see the question of whether to continue touches many traders.
In fact, today I received a DM from a trader wondering whether he ought to continue, seeking my advice,
I’m a struggling trader and now 39 years old. Been trying to make it since I was 28 years old on and off. Blown out 4 times small accounts of 5-10k. I was mentored by (redacted) a strategy trading opening orders and fishing for good fills on non news stocks looking for inefficiencies. First time ever I was making money, I made 15k first year and 18k the next year, before my prop firm went under and took my 20k funds with them. This devastated me and only now I am trying to get back trading again. I can’t trade my basket opening system no longer though unfortunately as no one is offering me the buying power required as it floats orders and cancels if not filled. I am reading your Playbook and wish I found it earlier. I am following (redacted) style, he is a big fan of your work, so I am trying to adapt a completely new style with specific plays now.
4 kids and a wife that depend on me.
I never thought about getting rich like some, I just wanted to be free and replace my income with trading and that’s still very much the vision. But friends have over taken me now with getting ahead in property and their jobs while I took the chance on trading working out….. I’ve always believed to follow your passions.
Just wanted to ask if you felt I should move on now being 39 or should I keep going trying to adapt and find a niche?
This is a personal decision. And I shared with this trader, there are probably pro traders who know him better that can offer better advice.
I did share some general thoughts to consider.
Trading is not worth negatively impacting your family financially.
You need passion and talent to prosper and sustain as a trader. Are you improving as a trader? By end of Year1, we will see most with talent show progress, with a personal sort of trading edge. And this progress will continue Year2 and Year3 and Year4 if you have talent. If you are not showing progress, then this is information to help you make your decision.
We have had less success with older traders with a family surviving a very real learning curve than younger new hires.
This does not have to be a binary decision- should I quit or continue? You can trade part-time with a new financially stable job. You can transition into a new career with a secure financial package and employ part-time strategies with edge. One trader who recently left our firm, and loved trading, did so with this very plan.
Digging your heels in so you do not fail, may not be in your self-interest nor the firm’s. Having the self-awareness to recognize trading is not my true passion or talent, shows enormous emotional intelligence and also character. Traits that will be rewarded in your next career pursuit.
*no relevant positions
How we traded SIG and RKDA
Mike Bellafiore discusses RKDA and mostly SIG in our 11AM mentoring session today. Mike discusses the “moment in time” when you could have placed an excellent risk/reward trade in SIG. We hope these video reviews from our training room, help you improve as at trader.
Solutions for Improving Your Trading Entries
Hope your doing well. I just wanted to let you know how much I appreciate your book, “One Good Trade”. I have the audible version and with my hour commute to and from work to (brokerage firm). I’ve listened to it countless times.
Yesterday afternoon I decided to listen to it after a rather disappointing month of trading and caught the segment “price matters”. I thought it was an answer to prayer to be completely honest.
Lately, I have been trading more on the long side on support plays (mostly a reclaim of vwap, consolidation, or pullback to it). One thing I’ve noticed is my entries have been poor as I am not getting an entry near as tight as it should be around my planned entry point.
Some of it is has to do with slight hesitation, but also just not fighting for price like you mentioned in your book. Listening to you expound on this subject and reinforcing how important it is if you plan to go long at 36 that doesn’t mean 36.18, etc… has made me understand what separates those at the top of the food chain and the wannabe’s.
My planned risk gets skewed which leads to getting shaken out of more plays than I should with a sloppy entry. I definitely have a major goal I will be working on this month thanks to you and even though I am not physically there on your desk you are actually mentoring me through your books and videos (SMB Premium) more than you could know.
I hope you have a great weekend and once again, thank you!
@mikebellafiore
This trader seeks to improve his entries. I agree with him that this is a *very* important skill for active traders. It can be the difference between success and underperformance.
I really applaud this trader for finding a major goal to work on for the month. This is an excellent best practice for improvement. One that we employ on our desk, inspired by Dr. Steenbarger.
Many traders on our desk design a report card on a monthly goal. Intensive study on one goal helps trader make the most progress possible on this one issue and their trading overall. Solutions wrapped around best practices are also essential.
Last week, I had conversations with two traders on improving their entries. One developing trader asked about dark pools for improved entry and exit fills. Trader felt this was necessary for the next step forward in his trading. I suggested to another *very* large trader to improve their bid/ask percentage so they could trade even bigger and not leave as much money on the table. Traders met with a Senior Trader on how best to use our routes and technology internally and walked away with solutions.
Let’s tackle this one issue for the trader above with some possible solutions to consider:
Increase your bid/ask ratio. How often do you bid to enter and offer to sell?
Study access to dark pools so you can improve fills for bidding and asking.
Create entry rules on how far above price you will bid. For example, you might not allow entry to be above 5c of your price.
The key is to find solutions to improve performance and focus intensively on them for the month.
As always, I welcome your feedback/comments/questions at [email protected].
*no relevant positions
Rules for high conviction trades
During a daily review a developing trader tackled his system for re-entry with high conviction trades.
In his words on his high conviction IBB breakout trade, expressed with LABD:
(LABD) Was one of my larger picture ideas for the day. Was using this 3X leverage ETF to play the IBB breakout. IBB looked positioned for a breakout on the daily chart and have had experience trading this ETF in the past. Cheaper priced ETF so feel more comfortable sizing larger without the fear of being slipped. Goof liquidity and .01 cent spread. Was looking to swing this as long as IBB looked strong.
How was my execution?
Ended up flat on the idea after the IBB failed to hold above VWAP and looked weak around noon. The mistake I made here was not coming back to the idea after it reclaimed VWAP and ran into close. Initial entry was good and covered half into first move to pay for the trade.
@MikeBellafiore
With high conviction trades you may want to give them more room. You see the upside potential in the trade, thus more downside is warranted.
You do want to re-enter a LABD more often after exit or being stopped out. Since your conviction level is high, this idea is worth more risk.
And you do want to give the trade more tries than other setups. For a high conviction trade you might give the idea 3-5 tries as compared to a few with other opportunities.
I particularly like developing rules and setting alerts for re-enter. Here Trader after exiting ought to set an alert for if LABD reclaims VWAP. Trader ought to have a trading rule with his high conviction trades to re-enter if LABD reclaims VWAP.
We miss these trades mostly because we do not develop re-enter rules and set alerts. Rules and alerts are our solutions to improve on re-entry for high conviction trades.
As always, your feedback/questions/comments are welcome at [email protected].
*no relevant positions
Traders4ACause
SMB will be attending, donating to, and presenting at the 2017 Traders4ACause Charity Event, this October 6-8 in Las Vegas.
Here are ten reasons why you ought to attend:
It’s in Las Vegas.
Every dollar goes directly to selected charities.
It is a wonderful networking event for you to meet serious and successful traders.
I have attended the past 3 years, and have pages of notes full of trading lessons from the speakers who presented.
Traders from our firm have attended in the past with positive reviews.
I will be presenting.
My presentation will be short.
There will be golf.
There will be alcohol.
It’s an opportunity to give back as a trading community. As the slogan for Traders4ACause goes: We trade. We profit. We make a difference.
Come and give back!
What is working for YOU?
When I receive emails from new and developing traders they often dwell on what is not working with their trading. They recite with precision exactly what they are doing poorly and with thoughtful reasons for this. Inevitably, they ask for help with these issues.
My first response generally is to ask them what they do well. And we then build our conversation from around there.
Improvement comes from building from your strengths and minimizing what you do poorly. A trading coach said this so well to me about a firm trader he was helping. This was a trader who I just could not understand why was acting so frequently against his self-interest. That coach said to me, “Mike, all we can do is make those bad moments less frequent, last shorter, and not burn as hot.”
Let’s get back to focusing on what YOU do well as a trader.
I work with an experienced trader at our firm daily, who is seeking to improve. Our focus is on what is working for him. Honestly, I am surprised about what is working for him.
Today again was at the office early, and made $$ again pre market and positioned myself in DF at great price and caught a nice move.
This is working for him. He ought to do more of that. I will encourage him to do so.
Consider this with your trading:
What is working for you?
How can you do more of it?
How can you do more of that bigger?
As always, I welcome your feedback and/or questions at [email protected].
*no relevant positions
How traders trade high and low volatility
In this video Mike Bellafiore provides an answer to this question from the trading community: "In a high volatility market my playbook doesn't serve me well. What can I do?"
Lessons on Sizing
In this video Mike Bellafiore discusses a firm trader who had a terrific month trading but when it came to bumping up his share size he underperformed. See what advice Mike has for this trader.
* no relevant positions
Is it me or the market I am trading?
Hi Bella!
How are you? Probably you don’t remember me. My name is Andre and I am a Brazilian futures trader. We talked a few times in the past via email. I have read all of your books and others which you quote, like Brett Steenbarger.
I am trading since 2009. I had great results in the past, especially in the first 4-5 years. However, from 2015 on my results dropped and I am having a bad time trying to solve this.
Right now I am flat in the year. I know that as a trader I should focus on the process instead of the results. However, a few years of sample should be enough to take the results as a proof of process evolution.
I see myself now as a much better trader than I was in the past. Much more experienced, much more willing to take risk on the right occasions, more patient, more disciplined and with much more market time. However, my results don’t show me that I am right thinking this way. How do you see this question?
Is it normal to face difficulties like the ones that I am facing right now?
I am not talking about one bad week or one bad month. I am talking about 6 months, one year…Do you think is time for me to change the market I am trading?…….(edited) @MikeBellafiore
It is entirely possible to improve as a trader and for your results not to improve.
It is common for futures traders to consider more than one product. For example, Merritt Black who runs our futures chat room, trades mostly oil but also branches out to S&P futures. It is common for traders to develop an edge and then look to express that edge in different products and markets.
Generally a trader will discover what they do best and then research how this edge will perform in another product or market. For example, you might take your favorite trade in Brazilian futures and test it with S&P futures. If you find edge, then you expand how you express your best trade to another product.
Or even better was BRZU.
But you are right to measure how you are trading based on opportunity set and not PnL.
6 months of underperformance as a trader is time for analysis for most traders. Generally the shorter your time frame the more consistent one is with their trading. So unless you are a value trader, it feels like you should start asking some questions about how you are approaching markets.
This will make for a terrific conversation next week, when you appear as our trading guest with Merritt and me, during our webinar here.
Questions to consider:
Is the opportunity set not present in your markets or are you underperforming?
Have you sought to express your best trades in other products and markets?
Are you working with a coach or mentor who is reviewing your trading?
Have you develop a PlayBook, with your best trades, to stand as your trading business?
What can you add/subtract/improve to your trading process so you are performing at your best as a trader?
Are you actively working to diversify your trading so that you have multiple ways to attack markets?
What work are you doing with technology, to arm your trading with more opportunities?
And more……
We look forward to talking to you in more detail about your trading and offering some ideas to help you improve.
Bella
Related post
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Live mentoring session with Bella
*no relevant positions
Snapchat- When to add size
Traders often want to trade bigger. Today SNAP offered an example to me of when and how.
I was short Shapchat ($SNAP) intraday and scrolling through the SNAP positions of our other traders on the desk. I felt like I was not big enough in my short. I started to think where I could add to my winning position.
First, one of our firm traders shorted into the close yesterday when SNAP dipped below its IPO price of 17 and held his position overnight. He was the biggest winner on the desk as SNAP gapped down, and traded down until EOD. That swing overnight is one setup worth study for developing traders.
But for those of us who were not short overnight, SNAP still offered opportunity and an important lesson on adding size.
Why did I like the SNAP short and want to add size?
1) It was below its IPO price of 17. This tends to breed sellers and short sellers.
2) 17 had been support since its open and been tested multiple times previously and was below this level. 3) SNAP was below VWAP intraday, indicating weakness. 4) SNAP was below its opening range, another intraday signal of weakness.
5) Its most logical trading price was much lower until new support was found.
6) Bloomberg Twitter sentiment was 6×1 negative.
My sense was this was a Trade2Hold until SNAP shows us a new support level, much much lower.
Whether right or wrong, I liked the risk/reward on this trade.
I did wonder near 16 if those who were chasing the short were going to get squeezed up to 16.40. So it was hard for me to press too hard around the 16 level for adds.
But there was a moment, where from a short term trading perspective, we were much more likely to be right on our shorts for a near LOD close. It is right here in the chart below:
The buyers around 16 lost and the sellers were now in control with this move down to 15.60.
I chatted with a new trader who was also short about his short position and encouraged adding into a pop from the low of 15.60. He did add.
Now the sellers were in control. This temporary upmove to 15.80 gave us an opportunity to add. This is where I felt I was not big enough and started thinking and talking to others about how to increase size responsibly. I did.
There are trades that work and are easy. As traders, we want to make sure we are big enough, taking on enough risk in these opportunities. We talk about increasing size, but we must be specific about the opportunities best for us to do so.
And this was one of those opportunities.
*Mike Bellafiore is short SNAP