In this video renowned trading coach and author Dr. Brett Steenbarger and Mike Bellafiore present to a proprietary trading firm in the Philippines on how the best active proprietary trader are reaching new levels (surprisingly). Learn how top proprietary traders are getting even better.
View Video Transcriptin this video renowned trading coach and
author dr. Brett Steinberger and I
present live to proprietary trading firm
in the Philippines how the best active
proprietary traders are reaching new
levels surprisingly hi I’m Mike
bellifiore co-founder of SME capital and
we’re a proprietary trading firm located
in midtown Manhattan and I’m also the
author of the trading classic one good
trade and the playbook click our
subscribe button so you don’t miss any
of the videos they’re producing for you
in the trading community learn how top
proprietary traders are getting even
better so you can grow your trading
account
so dr. steamed burger I think we had
discussed giving some of the students a
preview of how we do things that has to
be capital so one of the things that we
do on a day when dr. Steinberg revisits
and coaches and mentors our traders is
we ask him to give an overview of what
he’s seeing in the markets and so he has
the pulse of what big money traders are
doing hedge funds sophisticated traders
you know some of the biggest traders in
the world both as discretionary and
quantitative traders we are price action
active proprietary traders and have a
different perspective and so it’s very
helpful for our traders it’s very
interesting to me and I’ll be wrench for
you guys to hear hey hey what are some
of the more sophisticated people in the
world world thinking and what is dr.
Steinberg are seeing in his own work
with his own trading and the people that
he’s talking to
so dr. Steinberg what are some of the
main themes that you’re looking at in
the market today
well thanks Mike you know in the US
stock market we’re seeing something very
very interesting we saw a situation
where obviously we had a big big big
decline from mid-february to mid-march
and then we had quite a rally off that
March bottom particularly in certain
sectors of the market what the equity
long-short investors that I work with
we’re doing was picking the companies
that they felt would benefit in a kovin
environment and pick the companies that
were vulnerable so they were long the
companies that would be secure like some
of the technology shares and they’re
short some of the companies that they
felt would be vulnerable banks would be
an example because of the number of
bankruptcies and economic decline then
we saw recently
change in the character of the market
small cap shares which had been lagging
suddenly started to outperform some of
the sectors that were beaten down
including you know things like Airlines
and cruise lines and things like that
suddenly we got a lot of value oriented
buying in those shares on top of the
buying in the strong company so we had a
big increase of breadth and normally
that leads to momentum upside momentum
going further what happened
late last week is a big reversal of that
the decline that we saw recently is not
a normal decline the decline we’ve seen
in the overnight action in the SMP
futures the es contract this is not
normal why do I say that because if we
look at the percentage of stocks
training above their short term moving
average so the percentage of S&P 500
stocks trading above their three-day
moving average above their 5-day moving
average it’s under well under 10% in
other words in the last few days it’s
not just that the market has gone down
it’s that everything has gone down that
is unusual following a period of strong
breath following a momentum move higher
now why would that be why would what the
market suddenly reverse so violently
across all of the sectors there are two
things that the money managers I speak
with are talking about one is the
decision of the US administration to
entertain the idea of a punishment for
China for their handling of the
coronavirus situation
including possible tariffs so if you add
a trade war to an already very
vulnerable and weak economy well that
starts to sound a little bit like a
replay of the 1930s and the tremendous
depression that we experienced so that’s
a concern the investors are looking for
signs of an of a growing economy or a
possibility of growth and anything that
we’re threatened that is really a
problem the other issue that they’re
pointing to is that if you look at the
mobility Danita coming from smartphones
so we can track smartphones and we can
figure out if people are moving around
and where they’re moving around – Apple
has made these data available basically
in the US the lockdown the sheltering in
place the social distancing whatever you
want to call it it’s ended it’s over it
doesn’t matter what the governor’s say
it’s over people are congregating people
are traveling people are shopping my
wife and I drove around in our car and
we observe this just in our local area
and so people are tired of being indoors
and I certainly understand that
and that in the eyes of the money
managers I speak with that is likely to
lead to a second wave of the virus and
further problems and markets take that
very seriously so we have two things
that have come up that are potentially
big big issues that I will be tracking
going forward if you want to learn three
real-world setups that our traders use
including this simple setup that we
teach all of our new traders and the
setup that turned one of our traders
into a seven-figure big money earner
check out the free webinar that were
they running just go ahead and click the
link that should be appearing right now
at the top right hand corner of your
screen that’s gonna open up this free
registration page in the new window so
don’t worry you’re not going to lose
this video you’re gonna learn more in a
couple of hours from this trading
workshop then from years of online
education after dr. Timbers remarks what
we’ll do is we will start to drill down
into specific names we will start to
talk about the stocks that are gonna be
most in play that is what we’re going to
be thinking about so for a day like
today it’s a little bit early so or late
and in the sense of sorry like don’t
worry everyone here is trading the US
market so we’re going though so for us
it’s a little bit it’s a little bit
early but we’re gonna look at you know a
company like Gilead Gilead is getting up
a little bit it’s in play it seems like
their drug will be used by more people
and the information coming out from them
is getting a little bit more promising
based on what people’s perceptions are
we’re gonna be looking at the airline’s
Warren Buffett headline across any of
the major news outlets is that he’s
turned on his opinion of the airlines
and thinks that those businesses are
materially different going forward we’re
gonna look at a company like CGC that
just put out news on how their company
is doing overall we’re gonna be trading
the overall markets because they
performed poorly overnight they’re
certainly they certainly are in play
we’ll look at volatility to determine
whether or not we’re going to trade the
overall markets when volatility is
elevated we will trade spy and do an IWM
+ bxx and UV XY we will trade them on a
momentum basis we will scalp them if we
start to see direction we will swing
them we’ll go around the room
and our junior traders will share their
best ideas those are gonna be the first
ones that go on a day like today but
we’ll also look at second day plays you
know what what was really working on
Friday so a company like Ino is
something we’ve been watching maybe
something like mRNA has been a
high-flyer that you’ve really been
watching and we’ll take we’ll take a
look at the really significant levels
that we saw from Friday and some of
those names Tesla is a company that was
in the news on Friday after Elon Musk
put out some of those funny tweets which
nobody can really understand in the
middle of the day and cause Tesla to
drop quite a bit so so that will be
something we’re looking for is what we
call a second day play something that
may follow through but you had asked
previously you know hey what are some of
the things that you know we’re doing you
know before the open and we are the way
that we start oh is my partner Steve
Spencer will hold his a meeting so he is
the experienced 20-plus year trader and
he will share levels technical levels of
importance in the stocks that are in
play where you might find buying and
selling that is a 15-minute meeting that
he broadcast to all of the new traders
and actually even people in our
education community at us and be
training then our form manager has an AM
meeting as well this is for the newer
traders this is where we go around the
room and each of the junior traders
gives their best idea and will comment
hey that’s a good idea hey that isn’t a
good idea why don’t you take a look at
this you didn’t think about this when
preparing that idea but we’re looking
for stocks that in play and I cover this
in our first training program SMB DNA
we’re looking for stocks that have a
catalyst whether that’s a news catalyst
or technical catalyst the technical
analysis catalyst we want something
that’s going to be moving today
there’s something behind it so the
airlines have a news catalyst behind it
today Warren Buffett is telling the
world that he is not as confident in the
airline stocks as yesterday that’s new
unusual news that is going to be in play
Gilead has a news catalyst behind it
that is going to be in play CGC has a
news catalyst behind it that’s going to
be in play Tesla will have technical
catalysts behind it
from day one yesterday that will be in
play we’re looking for oversold and
overbought conditions to tee up
technical trades that we may look for
going forward we will spend a lot of
time looking to short things that have
been overbought we’re looking for ways
to buy things that have been oversold
we’ll have an audio and a chat intraday
to communicate with each other and so
you had asked hey what gets us
interested right on the open for
particular trades Eleanor you’d sent
over a question for dr. Steinberg and
myself and dr. Steinberg er maybe you’ll
talk a little bit about the volume right
on the open that you teach us and our
newer traders so much about that tips
the hands of big orders from the big
money traders
how they’re leaving footprints for the
rest of us to follow yeah I would be
delighted like if I could just back up
here because I think you’re saying
something very important when when I
first started working with the SMB
traders the one lesson that I came away
with that I hadn’t appreciated in my
prior work is what you trade is just as
important as how you trade I think what
the morning meeting accomplishes is
focusing traders on space
pick stocks specific areas of
opportunity that morning right here
right now and the opportunity set is so
much greater in those areas than if they
were just generically trading an overall
index that it accounts for a large part
of their success one great way to figure
out what’s in play and where the
opportunity is is to work as a team and
share ideas and that’s what the morning
meeting accomplishes okay so early
morning volume you know who who’s
involved in the market during early
hours the large institutions that I work
with they have to participate when there
is greatest liquidity and in the US
stock market that’s early in the day and
late in the day and so early in the day
you will see the buying and selling
activity of large institutional
participants that move markets
these are portfolio managers trading
hundreds of millions of dollars in their
portfolio and sometimes north of 1
billion dollars and it also includes
very large participants like like the
one I was talking with this morning
where they’re really not even doing
trading they’re an asset manager and
they’re moving very large flows from
pension funds and sovereign wealth
organizations much larger than hedge
funds so they’re all inste they’re all
active in those early hours and we can
use tools to figure out are they leaning
toward the upside or downside do they
have a directional bias for the day’s
trade so when we look at Friday’s trade
for instance we could see that
there was persistent hitting of bids we
saw that when orders came in I I should
say transactions came in that were
occurring at the market offer price the
market was not able to go up instead
those orders were absorbed and we saw
subsequent hitting of bids transaction
transactions occurring at the bid price
this is called a delta indicator which
meant that sellers were more aggressive
the same information was coming across
in the NY IC tip TI ck which tells us
how many stocks are trading on up ticks
– the number trading on down ticks and
that number started negative and stayed
negative through much of the session so
we saw institutions aggressively selling
and when there was buying when we saw
positive up ticks when we saw
transactions occurring at the market
offer price the market was barely able
to budge higher the buyers were trapped
and that led to subsequent selling so by
seeing what the big players are doing we
you and me are able to be more nimble
than they are and we can jump in front
of their orders and take advantage of
what they’re doing so Alan are you asked
us dr. steam burger myself to answer a
couple of questions I’m gonna start with
one of them if that’s okay yeah please
go ahead
what are the most important processes
that you go through with your traders to
keep them motivated especially in these
times or do you expect your traders to
self-regulate themselves based on your
screening criteria before hiring one of
the traders on our desk that dr.
Steinberg and I are very fortunate to
work with is shark so when you become a
great
traitor on our desk you earned a
nickname
and so Kenny’s nickname is shark and he
certainly is a great trader has become a
great trader started out of college
didn’t know very much about trading if
anything at all
and grew with our firm
I grew as a trader from the beginning to
now a really terrific trader so the one
of the really tremendous milestones that
you can hit at our firm is to be able to
make two million dollars at in P&L for
the year and if you earn more than two
million dollars net and trading profits
for the year you earn a black shirt and
this is shark receiving his black shirt
I remember and it’s such a great
question that you’ve posed for us I
remember the first time that shark had
one of those really really big gears he
did a yearly review and set goals for
the next year we do this with all of our
traders and in his goals for the year he
set out future goals which when I read
it’s just gave me pause I was taken
aback I had my jaw dropped I I was
stunned and he had laid out what he
wanted to accomplish going forward as a
trader after just having this monster
year and you know when I started a firm
I always want to think that our traders
are gonna grow and do really well and
the firm that I started at and learned
that had had great traders and an
tremendous success but he wrote in his
yearly reviews his next goal was
to mate eight to meet to make eight
figures as a traitor and so the the best
traders the elite traders don’t need to
be motivated they’re self-motivated in
fact I would I would look at it a little
bit differently it’s our job to make
sure that they are in an environment
where they can keep learning it’s our
job to make sure that we have the
resources that they can do more that we
have the infrastructure where they can
trade more products they can trade
bigger they can trade with more
sophistication they can be around newer
traders that will inspire them to keep
getting better experienced traders from
whom they can learn technology that will
help them trade better and bigger that’s
what that’s what we see with with with
our guys and I I’ll mention one more
thing which is so recently I was in
London and mr. Lee you mentioned how
this is a period of time where you have
been as busy as ever we’ve been we’ve
been busy as well and one of the trips I
took recently was to a futures firm in
London and their traders asked me a very
similar question these were these were
guys who were making a lot of money as
well and interested in you know how do
they keep the momentum going how do they
keep their motivation to keep doing
better when after they’ve made so much
money and dr. Steinberger has had one of
the great talks that I’ve actually ever
heard in our training room which maybe
he can talk a little bit about later but
but I but what I shared with the traders
at this Futures firm and what dr.
Steinberg will share with our traders
and what I’ll share with you guys is
good is not good enough
and the great traders don’t accept good
in anything they do they don’t accept it
in their daily reviews they don’t accept
it with their work on technology they
don’t work they don’t accept it with
their individual workouts with their
diet with their sleep patterns they
don’t accept it in any form of their
life and their it’s across the board
and so it’s it’s not it’s it’s not about
for them money or getting to a place in
their career where they’ve achieved
things it what what they’re interested
in doing is continually trying to get
better
might I give an analogy yeah yeah if I
could give it an analogy okay so I’m a
psychologist right and I’ve been
reasonably successful from a financial
vantage point as a psychologist both
working with financial firms teaching at
medical school etc also through my
investments okay so I’ve made a good
amount of money as a psychologist so the
question could come up you’ve made so
much money how do you find the
motivation to want to keep helping
people like you’ve already made your
money why should you want to go help
people it has nothing to do with money
when you are invested in the process
what you do when what you do is
meaningful to you then the P&L is not
your primary motivator and I think that
happens with great trainers I think that
happens with great folks in any
profession traders ask how long do you
sitting for a trader to develop
especially after seeing their potential
do you believe there are natural-born
traders those that only need a little
guidance to become successful one of the
resources that SMB shares with the
trading community is our YouTube channel
go to youtube and type in SMB capital
and we share a bunch of free videos to
help traders improve on our channel so
recently we had one of our junior
traders present and in the back
story – one of our junior traders
presenting his in March we had the best
trading month that we’ve ever had it was
a historic month for our traders and dr.
Steinberg and I were discussing how do
we leverage the success of all of our
traders in perpetuity so that everybody
can learn from the success of our star
trader there’s a junior traders that did
really well our middle-class traders who
reach new levels and so one of the
junior traders who had done particularly
well you know was moving into a second
year and it wasn’t really until the
second year and this this was a trader
who was a very top recruit by our firm
showed experience that was promising
showed bandwidth that was promising
really a strong passion for trading
which was really exciting but you know
in his first year you know not much P&L
but now is really endear to really
starting to do pretty well and he did a
video about four changes he’s made that
have helped him do much better and for
him it was rigidity and routine
his size and risk management being more
methodical trading his psychological
strengths selectivity and capitalization
through confirmation but but and you
know he’s trading probably as well
pound-for-pound experience for
experiences anyone at our firm but it’s
it’s taken some time uh Mike I jump in
yeah yeah so that traitor that you’re
referring to you know he had a style of
trading that was working for him and he
had gotten away from it and so being
able to accept who he is
what he does well what he sees well in
markets being able to accept that and
build upon that I think was an important
element of his success when he tried and
I see that this I’ve seen this to my own
trading over the years if I try to be
someone different from Who I am if I get
away from my strengths I don’t make
money and that’s what was happening with
this trader
and so acceptance of who he is and what
he does well really helped him turn
things around so there’s a traitor in
this picture I’m not gonna point out
which one who in March made over two and
a half million dollars and for the month
it wasn’t the top trader at our firm but
but monster monster month and last year
actually was the highest P&L trader at a
firm when when I met at we met him in
college he actually trained with us as a
trader in college he went through a
training program when he was in college
and I ended up hiring him after that
he in his first year he traded through
college and his first year he made about
$60,000 us his first full year trading
the second year he made about $180,000
but it wasn’t until the very last month
of his second year that he made almost
all of that and so you know his first
month he’s kind of scuttling his first
year’s kind of scuttling his second year
he’s really doing almost nothing until
the very end of his second year and he’s
gone on to be you know one of the best
traders at our firm
last year the number one performer at
our firm and remember we have some
really great traders and you know the
thing about him is that he just has
extraordin extraordinary ability to
select stocks
I’m extraordinary I never don’t have a
trader as good as him at just
understanding when there’s just gonna be
a big order that comes into the
marketplace and he just gets in without
taking any heat on the trade he gets in
with tremendous size it’s almost like he
gets in and it’s like everybody else can
start buying now and it’s like how did
every time like how did he know that
that thing was really gonna go right now
I’ll see it when it starts to get going
but he’ll start getting in before it
even even gets going
he’s just extraordinary with the stock
selection and you know so you might say
oh he has this immense talent to find
stocks and and I think he probably does
have some talent but the truth is when
you break that down he has a he has a
vast network of people he’s talking to
he has a unique way that he develops a
stock selection
he has insight into what some big retail
traders are doing what some
sophisticated bigger institutional
traders might be thinking about he’s got
this really cool network that he’s
developed even though he’s kind of quiet
but he’s just reached out made
connections with people he’s chatting
with people he’s emailing with people
and he’s just put together is really
neat Network and it’s enabled him after
time to build this incredible skill of
stock selection and put it to use his
traders asked do you still allow your
traders to practice solely discretionary
trading given the onset of automation
yes we do
so when you come into our firm we train
you to be a discretionary trader you
take S&B DNA and then you take the
winning trader but then you’re also
taught how to use technology so there
are classes where you learn how to build
alerts we learn how to build filters
where you learn how to build automated
models you’re expected to be able to do
all three of them the last trader to
earn a green shirt at our firm you earn
a green shirt if you make $1,000,000 net
and trading P&L for the year that’s sort
of the big first milestone that you get
at our careers to earn a green shirt a
green shirt hang actually on our trading
floor for something for people to aspire
to and so the last guy
firstly hit green shirt status is
somebody who had called hybrid trader
somebody who trades with discretion but
also uses technology to express ideas to
define the best trades for him to trade
so on our desk we have alerts that
alerts you to your favorite setups we
have scripts where you can automatically
get into certain setups that hit the
market place we have automated models
rules n rules out to be able to trade
particular market opportunities that you
define and so I’ve seen and and I think
this is a really important question
because I’ve seen traders who were not
gonna make it
as solely discretionary traders become
seven-figure trader they were not gonna
make it as solely discretionary traders
and there are certainly traders do if
you made them be quants or automated
traders would make it as well but I’ve
but I’ve also seen traders who were just
gonna be okay as traders they were going
to be middle-class traders but with when
armed with technology have gone on to
become seven-figure traders and so one
of the things we do encourage our
traders at our desk is to have a weekly
meeting with their teams to discuss the
technology they can be building to find
better trading opportunities what alerts
what scripts and what automated models
they can be building together to
increase their P&L our traders ask how
have you adjusted your trading style and
dr. steam Berger if I can ask you to
answer this and strategies given all the
events that have happened leading up to
what the crisis has evolved to today yes
what yeah what you’ve talked about with
the SME traders is the idea of plain
booking the idea of studying the ways in
which the market sets up and the ways in
which you best try
those setups the challenge is that
opportunities set up differently in
different market environments when we
get a very volatile market where the VIX
was around 60 as opposed to January when
we had a VIX more like 12 markets move
differently they extend for example
during the volatile period when we had
the big decline breakout trades worked
really really well a stock or the index
would trade in a range and breakout from
that range on good volume and you could
count on that breakout move extending
you could as they say nail-and-bail you
could get in on the breakout it goes
your way quickly take some profits if
you try doing that in the low volatility
environment you wait for the breakout
it’s already moved and it’s ready to
reverse and so that same breakout trade
doesn’t work so well you have to trade
it differently and so the really good
traders not only study their best trades
and playbook them they study the new
best ways of trading in the changed
market environment so that they’re
always able to adapt what that means in
practice is that the traders are even
the experienced traders are always
learning they’re always adapting and in
the team structure they’re learning with
each other and they’re learning from
each other so remember how we talked
about shark hitting that career
milestone of earning a black shirt well
that at the time seems like a lot of PL
for him in March we’ll we’ll slip that
in a little bit but at March you know he
made over three and a half million
dollars and one month and and earning
that black shirt for the entire year and
it really wasn’t as big of an
accomplishment as we thought at the time
but the reason for that and the reason
for that is a couple of years before
that we had a recognition that we just
weren’t that good at marketplace we were
really good at trading individual names
we just weren’t good at trading the
overall market we weren’t good at
trading spy we weren’t good at trading
volatility products and we needed to get
better we were leaving too much money on
the table as a prop firm and ends needed
to improve we need to take ownership of
that and so I asked dr. Stein Barger if
he would work with some of our guys on
marketplace his background as a futures
trader and he came in and emphasized
some indicators that the guys could look
at that can be particularly helpful and
you know one of the one of the ideas
that came out of this bootcamp on on
trading marketplace was you have to
trade differently when the VIX is below
fifteen then when it’s above fifteen
when the VIX is twelve
stick with your stocks in play and the
way you’ve been going up about your
business the VIX is fifteen think about
potentially trading spike use volatility
products when this when this when the
VIX is above twenty hey now you should
move to trading spies cues the
marketplace stocks maybe the high beta
stocks that follow along with the
marketplace don’t do what you’re doing
when the VIX was 12 that makes no sense
but because we had been working
preceding this period of time in March
on our marketplace stocks and because we
had built
the playbooks to be able to trade the
spies and the volatility products when
VIX was 60 and above guys who two years
ago weren’t really that good at it
really capitalized and they had months
many multiples of their previous high
months it’s that that that desire you
know it really is that desire to look in
the mirror and just sort of say I’m just
not good enough at certain things I
really do need to get better we’re not
good enough and I remember saying this
is a doctor seen burger we’re just not
good enough at marketplace right now and
this is going to this is going to be an
issue for us going forward we need to
solve this and and this is from we were
doing fine at the time and those traders
were doing well at the time but they
wanted to get better and and they did
and Mike if I could just jump in you
know one issue that sometimes comes up
with traders well we get a more volatile
environment there’s more opportunity
size up but they’re sizing up in a more
volatile environment so they end up
taking way more risk than they realize
and that can blow them out so you want
to be careful about sizing of positions
and risk taking when a market becomes
increasingly volatile it’s very easy to
lose more than you anticipated that
affects us emotionally and affects our
subsequent rainy day traders ask what
advice can you give to proprietary
traders who are making money but are
still look for higher greater and better
profits so this is swang this is swank
getting his Blackshirt
for the first time and he – in March
made those numbers look quite small but
one of the things that swang has done
over the course of the last two three
years is learn to express his best
trades with options as well
so he is a terrific equities trader and
he has grown the way he can express his
trades with options as well
we noticed after one particular year
that he had made some decent money
trading options our floor manager
challenged him let’s do more of that to
trade with a little bit bigger size to
more of it it was working keep doing it
and so what we encourage our traders to
do is to express their ideas in
different ways to add different products
interestingly enough Shuang had a pretty
good month of March trading futures he
started trading for us the night
sessions for you guys the early session
but he started jumping in when the Asian
markets started to open and trading us
futures and having some success with
that because volatility was so high and
dr. Stein Barger wrote a interesting
tweet a while back which I think speaks
to this and and and we spoke to this a
little bit before and so you know the
question is how do you get better how do
you make more money and the answer tends
to be and I don’t want to put words in
your mouth although you did tweet this
so I don’t know if I’m doing that it
sits on the public record the answer
tends to be what dr. Steinberg is saying
here what trading do you do that is
truly gifted or do your true gifts lie
outside of financial markets so much of
success is figuring out what you’re
meant to be doing
and so dr. Stein burgers to humble to
bring this up but swang is a model of
consistency throughout the years is P&L
has been very high and also had very
little drawdown the very few losing days
very few losing weeks but prior to his
historic March he got off-track he
started to see drawdown and he started
to see drawdown because he started to
get away from what he is truly gifted at
he started to do more swing trading they
got in the way of what dr. Steve Buerger
says is his swank trading don’t let your
swing trading get in the way of your
Swank trading and we looked at his
trading results from trader view and dr.
Stein Berger saw what he was doing and
said hey get back to what you’re doing
well get get back to more of that active
quick thinking short-term trading that
has built your career and what you’re
special at and move away from more of
the p.m. work that I’m seeing you do
I wrote this weekend some of the best
active traders are reaching new levels
by taking less risk reducing stress
lowering drawdown better consistency
collaborating and not holding through
pain
fighting price action increasing their
holding time or predicting now look I
want to say that there’s lots of
different ways to trade I am talking
about active traders and these are the
active traders that I’m coaching and
mentoring and are working at our firm so
I’m not suggesting that this encompasses
all traders but there’s a commonality
as to how the best active traders are
reaching new levels there’s a a there’s
a through path through their best
trading it’s not what you hear people
talk about on cable TV it’s not what you
hear out there on cable TV or the
mythology out there about what great
trading is all about is you know I’ve
got to have really I got to have a
really strong stomach I’ve got to really
be able to take a lot of pain that’s how
you become a really good trader I got a
man up I’m not seeing that with the best
traders you know there’s this thought
process that they got to be the ones
that predict the markets gonna go down
today and really catch that right I’m
not seeing that with the best active
traders and this is mythologized and you
know movies like the big short where you
know we we we marvel at the people that
can just call the turn I’m not seeing
that with the best traders I’m seeing
the exact opposite with these
proprietary traders reaching new levels
and and they’re purposely structuring
their days and their trading to take on
less risk to take on less stress to draw
down less to be more consistent and
they’re making more in Mike if I could
jump in you know psychologically what
those best traders are doing is they’re
quick to accept when an idea is not work
out or what a train is not working out
they don’t view it as a defeat they
don’t view it as a failure
they are quick to accept it’s not
working out and move on and learn from
it and that allows them to be flexible
it allows them to go after the next
opportunity great traders are great at
taking losses
they’re also quick at taking losses
titters ask how do you know when it’s
time to give up as a trader or on a
trader so I received this email from a
trader who was 10 months into his
trading career and ensure he was
struggling he was at the bottom of his
trading class and he asked me the
question at what point should have
trader give up he was at a tier 1 prop
firm had a great mentor really bright
person loved trading called them up how
to talk with them and he really still
loved trading he had a great mentor
mentor was one of the great day traders
of all time
he had a firm where they had tremendous
resources
he had a firm where they were still
backing him and believed in him and he
had the cognitive skills to succeed as a
trader based on on my experience and so
I said hey let’s give this a little bit
more time why don’t we re up let’s give
this a year and a half let’s read up and
see how you’re at this trader was really
thinking about moving on it was you can
see from his his email he was in pain as
to him not succeeding at this point he
wasn’t he was in pain it was it was
crushing him first time in his life he
had really experienced such a consistent
period of underperformance that’s
something that was important to him and
a I kept at it and you know I think what
I’ll tell you about this trader might
surprise some of you look at that email
that’s how we felt 10 months into his
trading career should I give up
that traitor today is really one of the
best active proprietary traders in the
u.s. today
hands now north of five million dollars
in profits is going to make eight
figures one one day it’s just a matter
of time one of the truly great success
stories
ten months into his career seriously
considered giving up and so you know for
for a firm you know we think about is
the trader improving we think about does
the trader do the work that shows he’s
passionate about trading we think about
does the trader have some ability we
think about is the trader progressing
are we seeing that in the numbers we
think about how is the trader doing
relative to other people in this class
because there are markets that are
better than others and if you’re falling
behind in a market like this that does
that does say something I think the
biggest gift that my firm gives to
traders that very few people talk about
is time we give you time pay your bills
you don’t have to worry about the rents
have to worry about you know eatin and
hitting the gym we take care of that
it’s time we give you time to grow you
need time to grow even at a firm like
ours where you have all the resources
that you need in the world to succeed
all the capital all the coaching get to
work with the best trading coach in the
world like dr. Steen Barger all the
other great traders around you who are
succeeding who strategies you can see
all the mentoring and coaching meetings
we give every day
the a.m. meetings from Spencer the
training people go through the
technology that people get their hands
on it’s time so but if you’re not
improving and it’s something you’re you
don’t enjoy you do have a real decision
and I would say that the niche you trade
is important get this note from a former
SMB intern recently which I think
teaches a really important lesson
and he wrote hope your family’s doing
well some backstory and myself since we
last spoke
after my summer with SMB I realized I
didn’t fit in with day trading
personality-wise trading stake size at
the time etc absolutely loved that
summer in New York and continued to
cherish it being in an environment where
people constantly wanted to get better
and getting to interact with people
awesome at their sport getting to go to
your Saturday morning breakfast
invitations spending the weekends in
Central Park
writing in my journal on what happened
that week I feel like it puts the spark
back in my eyes when I think back to it
it was a tough blow at the end of the
summer though when I realized I was not
a total fit for trading at the time
after grad graduation I spent some time
with a firm redacted in the prime
brokerage Group in Florida and
eventually moved to perm redacted to
work on the research publishing side at
her and redacted not a total equity
analyst monkey that you see on CNBC but
sometimes feels close to it I’m now in
London doing the same thing I got I’ve
done a ton of traveling prior to the
shutdown and I’m moving up the ranks
making decent money but I missed that
environment of where people want to be
peak performers in my job I imagine most
of corporate jobs you get paid to grind
it out and not screw up too much there’s
not much upside in being a peak
performer unless you’re some kind of
Rainmaker that doesn’t stop me from
finding other areas investing and
trading I focused on building my
playbook now for these opportunities and
I find the longer term trading focus
while having a full-time job gives me
psychological comfort I have a job with
monthly income so I don’t have to trade
at the set up isn’t there I wanted to
pass along this message one to reconnect
and say thank you again but that
learning experience that summer and the
great content your team continues to
produce – maybe my message can provide
some hope and belief for the young
traders that reach out but maybe aren’t
cut out for day trading or find that
doesn’t fit who they are I feel like we
each have our own paths to take and
learn from
so it just may be that the niche that
you starred in is not the right niche
and it’s okay to say that it so it’s
okay to say that to yourself it may be
it may not be the trading is the right
thing for you but you can see there are
plenty of people who I’ve worked with
who have taken their operative taken
their experience as traders and parlayed
that into really incredible other
experiences in finance trading is the
top of the food chain it’s the hardest
thing to do and all of Finance it’s the
hardest thing to do in all finance it’s
the very top of the chain there isn’t
anybody above traders and you know they
say in baseball the hardest thing to do
is hit a baseball the hardest thing to
do in finance is to be a discretionary
rater or to be a trader P&L trader of
any kind
it’s the hardest thing I’ve ever had to
do in my life and so it’s okay sometimes
to say hey maybe not this type of
trading or or maybe I’m gonna do a
different type of work in finance our
traders asked how do you know how much
you should allocate funds to a certain
trader versus another trader current
setup in our firm here is that we range
allocation from fifty thousand to a
million depending on the trader but that
criteria for deciding who gets more
funds is often questioned so I’m gonna
let you guys handle that amongst
yourselves I’m not gonna pretend I wish
I could but I can tell you we did have
an issue like this at our firm and so we
have a team that wanted more capital for
a particular strategy and the strategy
was being traded by other traders at the
firm and we were starting to run out of
capital for this particular strategy and
not only were we starting to run out of
capital but we didn’t really even want
to put more capital into one particular
strategy is that creates too much risk
for the firm for everybody to be piled
into the same idea and so but it was a
strategy where it was really working
everybody at the firm saw it and
everybody wanted to do it
and we had this question of how do we
decide who gets what
there’s one team came forward and said
hey I want a lot more I want a lot more
capital and they said here’s why they
were here’s why we deserve it they had
developed a unique data set that gave
signals that allowed them to perform
better than anybody else at the firm of
the strategy they had collaborated to
[Music]
improve the strategy so that its
profitability was better per dollar than
anybody else’s at the firm and they were
actively doing the work to show that
they were they were doing better and
they had the stats to back it up and so
we had to think about it and we said
yeah I mean they they deserve to have
capacity capital for that particular
strategy and we went and and decrease
some of the capital for some of the
other guys but I think overall one of
the things that we do on our firm is we
tag and measure all of our traits we
keep statistics on all of our setups
they have names they have stats behind
them and if traders show that certain
strategies are doing well then they’ve
earned the right to be given more
capital but remember they’ve earned that
right they’ve shown it in real-time they
haven’t just come in and said I really
think this would be a great strategy I
really think I would be great at running
it I really think I deserve more capital
I really think if you gave me more
capital I would do well they baron it
they show it Mike I jump in yes okay so
a hedge funds where I’ve worked I’ve
been part of the capital allocation
process oh the way it works is first you
have to show positive results then you
have to show that you have positive
risk-adjusted results which means that
you make a good amount of money relative
to the amount
that can be captured by a Sharpe ratio
or other statistics so it’s not just how
much total how many total dollars you
make it’s how much do you make per unit
of risk that you take they want to see
good risk adjusted returns then once you
show good returns a good risk adjusted
returns they want to see unique returns
are you doing something differently from
other traders if you have a big trader
who is successful and then a junior
trader who wants more capital but who is
very very highly correlated with the pit
Raider why should you give money to the
junior trader just give the big trader
more money so it’s portfolio
construction problem the firm has a
portfolio the portfolio consists of the
returns of the different traders any
portfolio needs to be diversified in
order to give consistent returns so you
need traders doing different things not
simply copying each other hi Brett can I
can I jump in oh yeah what other ratios
do you guys look up primarily when
you’re evaluating traders it varies for
my firm but the it’s not so much ratios
what they look at our factor exposures
so for instance they will look at
different periods of time is the trader
correlated with overall markets is the
trader making money more on the upside
than the downside he
the trainer of making money
momentum fashion they’re looking at
different factors to see how this
trainer makes their money and they’re
looking for diversification of those
factor exposures that’s really one of
the most important things that they look
at
so are they making money immediately
look at correlations but they’ll also
look at how the money was made are they
doing positive investing their money
short term longer term in different
markets etc etc etc thank you
oh absolutely absolutely I did a webinar
recently and someone talked about how
they their style of training that they
were making money by sticking to their
style and their health was to be sharp
as a market that’s not a style that’s
called a bias yeah that’s not called
good trainee that’s called being an
idiot I said be like a baseball player
who said well I only hit fast balls
that’s my style
that makes balls going to get a lot of
curve balls and off-speed stuff so we
wanted to stick to us that style has to
be adapted to various market conditions
ones that are not trending bottle less
fall on so forth I will take one more
and I’m gonna ask dr. steamer to answer
this we’re running up against our market
preparation yeah you are I gotta god
what are the best techniques to handle
draw downs and losing money dr.
Steinberger best techniques to handle
draw down
draw down and lose body the right way in
other words we have lost let daily loss
limits the SMB traders have that we have
lost limits per trade those will be
stopped out levels and so we’re losing
money in a planned fashion now that
sounds a little bit funny that we
actually planned all this money but you
have to you have to anticipate that this
is a probabilistic game sometimes the
probabilities don’t work out sometimes
ideas will be wrong and trades will go
wrong and you want to lose the right
amount of money and so anticipating
losses and making sure that you can
always come back from those losses is
the right way to drawdown okay go ahead
and click our subscribe button so you
don’t miss any of the videos they were
producing for you in the trading
community and please take the time to
add your feedback in the comment section
for what videos you’d like for us to
produce next and what you found helpful
from this video from all of us at SMB
train and trade well
* no relevant positions
