The Future of Prop Trading Webinar with


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The Future of Prop Trading Webinar with

  1. 1. The Future of Trading: The Multi-Product Multi-Market Discretionary Quant Trader 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 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. Congratulations!
  4. 4. One Good Trade
  5. 5. The PlayBook
  6. 6. Goals • • • • • Share my experience co-founding a prop firm Share how our prop firm had 2adapt and why Share how discretionary traders are modeling Highlight our vision for the future of trading You can be better tomorrow than you are today!
  7. 7. SMB Builds Profitable Traders SMB Builds CPTs
  8. 8. What We Do • • • • • NYC Prop Desk Back discretionary traders Back algorithmic trading models Train and back new traders Teach new traders globally
  9. 9. SMB Trading Philosophy • • • • • Trade the Stocks In Play Utilize the Principles of Elite Performance Get Better Everyday! Trade Big in your A+ Setups How good can you be?
  10. 10. SMB Begins • • • • One Really Bad Idea! Hey why don’t I just start a prop firm From my apartment and underfunded Singapore Presentation Admission – Delusional – Naïve – Arrogant
  11. 11. I Asked My Best Friend- A Trader • “Why would I want to do that?”
  12. 12. 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!
  13. 13. A Little Branding Luck • • • • One Good Trade Wall Street Warriors SMBU Blog StockTwits TV
  14. 14. Wall Street Warriors Branding • “Why would we want to do that?” Spencer. • There was no HD programming • A constant and free infomercial of SMB
  15. 15. SMBU Blog Branding • • • • 80 nations visiting daily Sharing free stories and trading tips daily We had no idea the blog would be so popular Dr. Phil visit to SMB Capital • The destination to learn how to trade
  16. 16. One Good Trade • “trading classic” • “the bible of prop trading” • Invited to build training programs globally • For hedge funds, prop desks, foreign brokerage houses
  17. 17. SMB 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
  18. 18. SMBU Spinoff • Training 4our prop desk opened 2those outside firm • 60 percent of our business overseas • Destination to learn how to trade US markets – SMB Systems Training – SMB Options – SMB FX – SMB Futures
  19. 19. 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
  20. 20. The Perfect Storm • • • • • Some of our better traders left Contraction in Prop Trading Government Regulation and fees increasing costs HFTs
  21. 21. HFTs Game Out Some Setups • Micro scalping • Momentum trading
  22. 22. HFTs Challenge • TGIF e-mail • Why do you guys even bother? • “You are a dinosaur!”
  23. 23. Algos that Hurt Us • LULU auto buyer 50c to 75c • .2c cutter • Liquidity on off dark pool adding slippage
  24. 24. The Pivot • “Weakness doesn’t matter if you find a solution.”- Ray Dalio
  25. 25. 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…….
  26. 26. Discretionary Traders undervalued…If! • Archive their best setups with detail • • • • • • Bionic Auto trading Multi-product Multi-market Constant Coaching Scalable Risk
  27. 27. Experienced Discretionary Traders do not Understand their A+ setups! • Recent recruiting of Experienced Traders • Over-reliance on their intuition • The non-news edge • A lack of methodology
  28. 28. Develop Your PlayBook
  29. 29. 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
  30. 30. The All-In Trade
  31. 31. The PlayBook Template • • • • • • • • Big Picture Fundamentals Technical Analysis Reading the Tape Intuition Trade Management Trade Strategy Trade Review
  32. 32. Make the trades your own!
  33. 33. 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
  34. 34. Bionic Discretionary Trader • Custom Filters that spot their A+ setups • Exit Management Tools • You cannot miss your A+ setups!
  35. 35. Quant Speak to be Bionic • • • • • • • • • News catalyst +/- 3 percent Increased RVOL 2xs ATR Risk/Reward 5x1 Holding above/below VWAP Past 10AM SMB Radar In Play Rank Trend Trades
  36. 36. The Power of Professional Trading Tools • • • • • Supplement our Preparation Preparation tools Scanning Filters Idea generation See what Senior Traders are trading live
  37. 37. SMB Scanner
  38. 38. SMB Real-time
  39. 39. SMB Radar
  40. 40. Midday and After-hours Review
  41. 41. SMB AM Meeting
  42. 42. 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
  43. 43. 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
  44. 44. A suburban oasis • • • • • • • Mansion Two maids- braii Fully stocked bar Lounging area Pool Gym and shower 2nd Fl trading desk
  45. 45. First Rule of Coaching
  46. 46. A core firm philosophy • Elite tennis players turned pro traders • Former athletes will fight better every tick
  47. 47. Elite traders need coaching too
  48. 48. 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
  49. 49. Naspers (NPN) • Caught the break above 52 week high • Made 50k instead of down 15k • Held until Reason2Sell
  50. 50. 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
  51. 51. 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
  52. 52. 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
  53. 53. Trader Coaches • • • • Strategies Psychology Mentor Head Trader
  54. 54. Auto Trading- The Discretionary Quant Trader • • • • • • Easy software Back-test, forward-test, live and scale from desktop Quant support for discretionary traders Another revenue line Improves their discretionary trading Discretionary traders best chance to figure out the next new market
  55. 55. Forward Testing for One Model • • • • • • • • • • • • • • • • On trend day play, I loosened parameters a bit and used the other good exit I came up with SMB Radar Stocks universe ~750 stocks with volume, atr screen buy first hour high b/t 1030 and 1530 when stock opens up 1% rv > 1.5 Exit: entry - 0.5*atr after 1100am, if 5min bar closes 0.05c below vwap, then exit 0.05c below the low of that bar 4/1/13-9/13/13 10k/trade Commission: 0.005c/share Total P&L: 29244 Avg 29.19 Count 1002 Std 276 t 3.3
  56. 56. One Bad Model in Backtesting • Trade logic: • Time > 945 • avg daily volume > 750k • stock_price > 5 • Open > PrevClose * 1.02 • RVOL > 1.5 • Last is in top 20% of day's range • Last > vwap • 1min bars in range for at least 5min that's less than 0.175 * atr then Buy • if stock trades below low of consolidation - .1 * atr or trailing stop that rises with each penny increase or time is 358 then Exit
  57. 57. Discretionary Traders Auto Trading
  58. 58. The Highly Competitive World of Proprietary Trading • • • • Right with direction of stock Pay the spread to gather a position Expert in Dark Pools 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
  59. 59. Three Takeaways • “You can be better tomorrow than you are today!” – Mike Bellafiore, The PlayBook • Be grateful! • Multi-market Multi-product Bionic Quant Discretionary Trader
  60. 60. Question 1 • What is a CPT?
  61. 61. Question 2 • Where is the next most important support level for $FB?
  62. 62. Question 3 • Name 3/5 variables that SMB uses to make a trading decision?
  63. 63. Question 4 • Who cares about your opinion in the marketplace?
  64. 64. Question 5 • What are the four ingredients necessary to become great at anything?
  65. 65. Question 6 • What famous trader teaches us to make traders our own?
  66. 66. Question 7 • Who is my favorite athlete because he employs so many coaches to help improve his game?
  67. 67. Question 8 • What two books did I write?
  68. 68. Question 9 • Who consistently provides the best active trader commentary on US Equities in the world?
  69. 69. Question 10 • What is the most important lesson the market will teach you?
  70. 70. Contact • • @mikebellafiore