A Prop Firm's Transition to Building Multi-
Product Multi-Market Discretionary Quant
Traders with The PlayBook
Mike Bellaf...
SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a
number o...
Goals
• Share my experience co-founding a prop firm
• Explain how SMB had to adapt and why
• Teach how discretionary trade...
What We Do
• NYC Prop Desk
• Back discretionary traders
• Back algorithmic trading models
• Train and back new traders
• T...
SMB Begins
• One Really Bad Idea!
• Hey why don’t I just start a prop firm
• From my apartment and underfunded
• Singapore...
I Asked My Best Friend- A Trader
• “Why would I want to do that?”
I Just Started
• Providing a solution
• Demand to be trained
• Insufficient trader training
• Willingness to teach and dev...
Business Model/Career Path
• Consistently Profitable Active Trader
• Get Bigger
• One product, one market career path
• So...
Built our Firm to 60 Discretionary
Traders
• Taught and developed new traders from
scratch trading our capital
• Did the w...
A Little Branding Luck
• One Good Trade
• Wall Street Warriors
• SMBU Blog
One Good Trade
• “trading classic”
• “the bible of prop trading”
• Invited to build training
programs globally
• Hedge Fun...
Wall Street Warriors Branding
• “Why would we want to do that?”, Spencer.
• There was no HD programming
• A constant and f...
SMBU Blog Branding
• 80 nations visiting daily
• Sharing free stories and trading tips daily
• We had no idea the blog wou...
SMBU Born
• The Spinoff
• 60 percent of our business overseas
• Destination to learn how to trade US markets
–SMB Systems ...
The Perfect Storm
• Some of our better traders left
• Contraction in Prop Trading
• Government
• Regulation and fees incre...
HFTs Game Out Some Setups
• Micro scalping
• Momentum trading
HFTs Challenge
• The Friday e-mail
• Why do you guys even bother?
•You are a dinosaur!
SMB Adapted and Got Stronger!
• Swing trading
• Trades2Hold until Reason2Sell
• Developed a new PlayBook
• More upside
• B...
Discretionary Traders
undervalued…If!
• Archive their best setups with detail
• Bionic
• Auto trading
• Multi-product
• Mu...
Understanding their A+ setups
• Recent recruiting of Experienced Traders
• Over-reliance on their intuition
•A lack of met...
Develop Your PlayBook
The PlayBook
• Archive your favorite setup after each close
• Template form
• From these trades choose your A+ setups
• In...
The All-In Trade
• A+ A+ trades
• Predetermined detailed variables combining
• Risk their week/day in their favorite trade
The PlayBook Template
• Big Picture
• Fundamentals
• Technical Analysis
• Reading the Tape
• Intuition
• Trade Management
...
Quant Speak
• News catalyst
• +/- 3 percent
• Increased RVOL
• 2xs ATR
• Risk/Reward 5x1
• Holding above/below VWAP
• Past...
Make the trades your own!
• Jim Rogers in Singapore
• Told everyone to become a farmer
• Give me a hot stock tip!
• Intern...
Build from your Strengths
• Understand what you do well
• Trade them more often
• Trade them with more size
• Trade them w...
Bionic Discretionary Trader
• Custom Filters that spot their A+ setups
• Exit Management Tools
• You cannot miss your A+ s...
Multi-product
• Become a CPT in one product
• Become a CPT and then trade bigger
• Not the best career path anymore
• Marg...
Multi-market (South Africa)
• The largest prop firm in South Africa
• 10 percent of their market
• Teach them US equities
...
A suburban oasis
• Mansion
• Two maids- braii
• Fully stocked bar
• Lounging area
• Pool
• Gym and shower
• 2nd Fl trading...
First Rule of Coaching
• Show you care
• Credibility
• Trader First
A core firm philosophy
• Elite tennis players turned pro traders
• Former athletes will fight better every tick
Elite traders need coaching too
• You do not get to make up your own trading
fundamentals
• Head traders must keep traders...
First Rand
• The Made Up Fade Trade
• Broke out on fresh news and volume
• Shorting and shorting and shorting
• Short the ...
Naspers (NPN)
• Caught the break above 52 week high
• Made 50k instead of down 15k
• Held until Reason2Sell
Scalable Risk Management
• Discretionary traders are wasting energy
complaining about their risk rules
• Rules based on pe...
Great and Continual Coaching
• Never a destination for a trader
• Improve everyday
• To become great at anything requires:...
The Coaches of Phil Mickelson
• Swing coach- Butch Harmon
• Short game coach- Dave Pelz
• Putting coach- Dave Stockton
• P...
Trader Coaches
• Strategies
• Psychology
• Mentor
• Head Trader
Auto Trading
• Easy software
• Quant support for discretionary traders
• Another revenue line
• Improves their discretiona...
Discretionary Traders Auto Trading
• You do not have to be a quant to join the
world of the quants!
• SMB discretionary tr...
Algos that Hurt Us
• LULU auto buyer 50c to 75c
• .2c cutter
• Liquidity on off dark pool adding slippage
The Highly Competitive World of
Proprietary Trading
• Right with direction of stock
• Pay the spread to gather a position
...
Three Takeaways
• You can be better tomorrow than you are
today!
• Be grateful!
• Multi-market Multi-product Bionic Quant
...
Contact
• mbellafiore@smbcap.com
• @mikebellafiore
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A prop firm's transition to building multi product, multi-market discretionary quant traders with The PlayBook

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The Trading Show Chicago is considered North America’s leading trading event where traders, quant investors and exchanges come together to explore new advances in trading strategy, quant models, and technology. The event consists of an exhibition, seminars, and a strategic conference.

This year Mike discussed “Relative Value Strategies: Tapping New Opportunities Beyond Speed.” and SMB’s transition to building multi-product, multi-market discretionary quant traders with The PlayBook.

Published in: Economy & Finance, Business
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A prop firm's transition to building multi product, multi-market discretionary quant traders with The PlayBook

  1. 1. A Prop Firm's Transition to Building Multi- Product Multi-Market Discretionary Quant Traders with The PlayBook Mike Bellafiore Co- Founder, SMB Capital Co-Founder, SMBU Author, One Good Trade and The PlayBook
  2. 2. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a number of products and services, both electronical (over the internet through smbtraining.com) and in person. SMB TRAINING also offers web-based, interactive training courses on demand. The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. SMB Training and SMB Capital Management, LLC are separate but affiliated companies. No relevant positions Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.”
  3. 3. Goals • Share my experience co-founding a prop firm • Explain how SMB had to adapt and why • Teach how discretionary traders are modeling • Highlight our vision for the future of trading • You can be better tomorrow than you are today!
  4. 4. What We Do • NYC Prop Desk • Back discretionary traders • Back algorithmic trading models • Train and back new traders • Teach new traders globally
  5. 5. SMB Begins • One Really Bad Idea! • Hey why don’t I just start a prop firm • From my apartment and underfunded • Singapore Presentation Admission – Delusion – Naïve – Arrogant
  6. 6. I Asked My Best Friend- A Trader • “Why would I want to do that?”
  7. 7. I Just Started • Providing a solution • Demand to be trained • Insufficient trader training • Willingness to teach and develop • Turns out we were quite good at it!
  8. 8. Business Model/Career Path • Consistently Profitable Active Trader • Get Bigger • One product, one market career path • So 2006ish • So wrong for today! • Margin of error too small
  9. 9. Built our Firm to 60 Discretionary Traders • Taught and developed new traders from scratch trading our capital • Did the work others were not willing to do • Very profitable years • Developed a strong reputation in new trader training space
  10. 10. A Little Branding Luck • One Good Trade • Wall Street Warriors • SMBU Blog
  11. 11. One Good Trade • “trading classic” • “the bible of prop trading” • Invited to build training programs globally • Hedge Funds, prop desks, foreign brokerage houses
  12. 12. Wall Street Warriors Branding • “Why would we want to do that?”, Spencer. • There was no HD programming • A constant and free infomercial of SMB
  13. 13. SMBU Blog Branding • 80 nations visiting daily • Sharing free stories and trading tips daily • We had no idea the blog would be so popular • The destination to learn how to trade
  14. 14. SMBU Born • The Spinoff • 60 percent of our business overseas • Destination to learn how to trade US markets –SMB Systems Training
  15. 15. The Perfect Storm • Some of our better traders left • Contraction in Prop Trading • Government • Regulation and fees increasing costs • HFTs
  16. 16. HFTs Game Out Some Setups • Micro scalping • Momentum trading
  17. 17. HFTs Challenge • The Friday e-mail • Why do you guys even bother? •You are a dinosaur!
  18. 18. SMB Adapted and Got Stronger! • Swing trading • Trades2Hold until Reason2Sell • Developed a new PlayBook • More upside • Built trading models • Encourage our traders to build auto strategies • Here’s what more have to do in our game…….
  19. 19. Discretionary Traders undervalued…If! • Archive their best setups with detail • Bionic • Auto trading • Multi-product • Multi-market • Constant Coaching • Scalable Risk
  20. 20. Understanding their A+ setups • Recent recruiting of Experienced Traders • Over-reliance on their intuition •A lack of methodology
  21. 21. Develop Your PlayBook
  22. 22. The PlayBook • Archive your favorite setup after each close • Template form • From these trades choose your A+ setups • Increase risk on A+ trades! • Swing: (2-5 percent) • Intraday: 30 percent of your intraday stop
  23. 23. The All-In Trade • A+ A+ trades • Predetermined detailed variables combining • Risk their week/day in their favorite trade
  24. 24. The PlayBook Template • Big Picture • Fundamentals • Technical Analysis • Reading the Tape • Intuition • Trade Management • Trade Strategy • Trade Review
  25. 25. Quant Speak • News catalyst • +/- 3 percent • Increased RVOL • 2xs ATR • Risk/Reward 5x1 • Holding above/below VWAP • Past 10AM • SMB Radar In Play Rank • Trend Trades
  26. 26. Make the trades your own! • Jim Rogers in Singapore • Told everyone to become a farmer • Give me a hot stock tip! • Internalize your trades
  27. 27. Build from your Strengths • Understand what you do well • Trade them more often • Trade them with more size • Trade them with a system that is scalable • Trade them with more confidence
  28. 28. Bionic Discretionary Trader • Custom Filters that spot their A+ setups • Exit Management Tools • You cannot miss your A+ setups!
  29. 29. Multi-product • Become a CPT in one product • Become a CPT and then trade bigger • Not the best career path anymore • Margin of error is getting smaller in all • Express your favorite patterns in other products • Intraday swing traders better with options
  30. 30. Multi-market (South Africa) • The largest prop firm in South Africa • 10 percent of their market • Teach them US equities • And help them with LSE and JSE
  31. 31. A suburban oasis • Mansion • Two maids- braii • Fully stocked bar • Lounging area • Pool • Gym and shower • 2nd Fl trading desk
  32. 32. First Rule of Coaching • Show you care • Credibility • Trader First
  33. 33. A core firm philosophy • Elite tennis players turned pro traders • Former athletes will fight better every tick
  34. 34. Elite traders need coaching too • You do not get to make up your own trading fundamentals • Head traders must keep traders on track • Mindset of Brody
  35. 35. First Rand • The Made Up Fade Trade • Broke out on fresh news and volume • Shorting and shorting and shorting • Short the first pop • But after Time and Volume now you are making a fundamentally poor trade
  36. 36. Naspers (NPN) • Caught the break above 52 week high • Made 50k instead of down 15k • Held until Reason2Sell
  37. 37. Scalable Risk Management • Discretionary traders are wasting energy complaining about their risk rules • Rules based on percentages and not P&L • Percentages are scalable • Just give them a bigger book • Develop clear rules • Trader Buy-in • If not get rid of them
  38. 38. Great and Continual Coaching • Never a destination for a trader • Improve everyday • To become great at anything requires: Domain knowledge, sustained energy, critical feedback and purposeful practice • The Talent Code, by Dan Coyle
  39. 39. The Coaches of Phil Mickelson • Swing coach- Butch Harmon • Short game coach- Dave Pelz • Putting coach- Dave Stockton • Psychology coach- British Open improvement • Strength and conditioning coach • Caddie- Bones
  40. 40. Trader Coaches • Strategies • Psychology • Mentor • Head Trader
  41. 41. Auto Trading • Easy software • Quant support for discretionary traders • Another revenue line • Improves their discretionary trading • Discretionary traders best chance to figure out the next new market
  42. 42. Discretionary Traders Auto Trading • You do not have to be a quant to join the world of the quants! • SMB discretionary traders building models
  43. 43. Algos that Hurt Us • LULU auto buyer 50c to 75c • .2c cutter • Liquidity on off dark pool adding slippage
  44. 44. The Highly Competitive World of Proprietary Trading • Right with direction of stock • Pay the spread to gather a position • Contend with slippage with large orders out – Algos run away from your stops – 49c exit becoming 12c – 51c stop becoming 78c – Adds up for active traders
  45. 45. Three Takeaways • You can be better tomorrow than you are today! • Be grateful! • Multi-market Multi-product Bionic Quant Discretionary Trader
  46. 46. Contact • mbellafiore@smbcap.com • @mikebellafiore

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