The Future of Prop Trading Webinar with BigMikeTrading.com

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. 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. Congratulations!

4. One Good Trade

5. The PlayBook

6. Goals
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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. SMB Builds Profitable
Traders
SMB Builds CPTs

8. What We Do
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NYC Prop Desk
Back discretionary traders
Back algorithmic trading models
Train and back new traders
Teach new traders globally

9. SMB Trading Philosophy
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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. SMB Begins
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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. I Asked My Best Friend- A Trader
• “Why would I want to do that?”

12. I Just Started
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Providing a solution
Demand to be trained
Insufficient trader training
Willingness to teach and develop
• Turns out we were quite good at it!

13. A Little Branding Luck
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One Good Trade
Wall Street Warriors
SMBU Blog
StockTwits TV

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. SMBU Blog Branding
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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. 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. 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. 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. Business Model/Career Path
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Consistently Profitable Active Trader
Get Bigger
One product, one market career path
So 2006ish
So wrong for today!
Margin of error too small

20. The Perfect Storm
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Some of our better traders left
Contraction in Prop Trading
Government
Regulation and fees increasing costs
HFTs

21. HFTs Game Out Some Setups
• Micro scalping
• Momentum trading

22. HFTs Challenge
• TGIF e-mail
• Why do you guys even bother?
• “You are a dinosaur!”

23. Algos that Hurt Us
• LULU auto buyer 50c to 75c
• .2c cutter
• Liquidity on off dark pool adding slippage

24. The Pivot
• “Weakness doesn’t matter if you find a
solution.”- Ray Dalio

25. SMB Adapted and Got Stronger!
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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. Discretionary Traders
undervalued…If!
• Archive their best setups with detail
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Bionic
Auto trading
Multi-product
Multi-market
Constant Coaching
Scalable Risk

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. Develop Your PlayBook

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. The All-In Trade

31. The PlayBook Template
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Big Picture
Fundamentals
Technical Analysis
Reading the Tape
Intuition
Trade Management
Trade Strategy
Trade Review

32. Make the trades your own!

33. Build from your Strengths
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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. Bionic Discretionary Trader
• Custom Filters that spot their A+ setups
• Exit Management Tools
• You cannot miss your A+ setups!

35. Quant Speak to be Bionic
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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. The Power of Professional Trading Tools
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Supplement our Preparation
Preparation tools
Scanning Filters
Idea generation
See what Senior Traders are trading live

37. SMB Scanner

38. SMB Real-time

39. SMB Radar

40. Midday and After-hours Review

41. SMB AM Meeting

42. Multi-product
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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. Multi-market (South Africa)
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The largest prop firm in South Africa
10 percent of their market
Teach them US equities
And help them with LSE and JSE

44. A suburban oasis
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Mansion
Two maids- braii
Fully stocked bar
Lounging area
Pool
Gym and shower
2nd Fl trading desk

45. First Rule of Coaching

46. A core firm philosophy
• Elite tennis players turned pro traders
• Former athletes will fight better every tick

47. Elite traders need coaching too

48. First Rand
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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. Naspers (NPN)
• Caught the break above 52 week high
• Made 50k instead of down 15k
• Held until Reason2Sell

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. 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. The Coaches of Phil Mickelson
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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. Trader Coaches
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Strategies
Psychology
Mentor
Head Trader

54. Auto Trading- The Discretionary
Quant Trader
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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. Forward Testing for One Model
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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. 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. Discretionary Traders Auto Trading

58. The Highly Competitive World of
Proprietary Trading
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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. 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. Question 1
• What is a CPT?

61. Question 2
• Where is the next most important support
level for $FB?

62. Question 3
• Name 3/5 variables that SMB uses to make a
trading decision?

63. Question 4
• Who cares about your opinion in the
marketplace?

64. Question 5
• What are the four ingredients necessary to
become great at anything?

65. Question 6
• What famous trader teaches us to make
traders our own?

66. Question 7
• Who is my favorite athlete because he
employs so many coaches to help improve his
game?

67. Question 8
• What two books did I write?

68. Question 9
• Who consistently provides the best active
trader commentary on US Equities in the
world?

69. Question 10
• What is the most important lesson the market
will teach you?

70. Contact
• mbellafiore@smbcap.com
• @mikebellafiore