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TO: TheUltimateTradingCompetitor
TOIsOneStepAheadofYou
TheFailureRateofaPropTrader
TheStandardIs: How GoodCanYouBe?
AndtheWinner Is...TO
FromtheTrainingRoom: ABiotechFadeTradeReview withTO
5Followthe TradingPathof Pippen
APathtoProfitability
BeinYour RightCulture
OneGoodTrade
FromtheTrainingRoom: TradinganIPO(FB) withPippen
6SpecialProjects: Get ReadytoTrade Pro
DoYouFail asaTrader,or DoYouLearnItIsNotYour Passion?
TheGMTest
TheRiseofCollegeTraders
MakeItHappen!
WhyAren’tUniversitiesTeachingTrading?
WeNeedMoreFemaleTraders
TheFutureFive-Year Career Path
FromOur TrainingRoom: AReversal TradeReview withSpecial Projects
7Prep
ItIsEveryoneElse’sFaultButMine
Trader Rant
Fear ofMissingOut(FOMO)
Follow Your GivebackRule
Consider theBigPicture
NegativeSelf-Talk
YouAreTradingTooManyStocks
MakingMoneyStartswithBeingProfessional
TradingonTilt
FindingtheSolutions
FromOur TrainingRoom: OneGoodLosingTradewithPrep
8We Are AllRudy
TheBlue-Collar Trader
DoPoker PlayersMakeBetter Traders?
IsaGiftedMindEnoughtoBecomeaGreatTrader?
Mental AgilityandConcentrationBuiltfromGaming,But...
YouCannotExecuteIfYouDon’tFirstSettleYour Personal Issues
OverthinkingHarmsYour Execution
FromtheTrainingRoom: ATechnical TradeReview withRudy
9Iceman: NoGuts,NoGlory
HavingtheGutstoBeYour BestTrader
IcemanTradesHisPersonality
ElevenStepstoTradeBigger
TheUnavoidablePsychological JourneytoSuccess
FromtheTrainingRoom: AnOpeningDriveReview withIceman
10GMan: TradingIs Not Easy
TradersNeedGreatCoaching
How GManImprovedHisTradingMethodology
Remember How ToughTradingIs
Argghh: InsufficientTrader Training
PartyTime
GMan’sPullbackTrade
11SouthAfrica
TheNoTrendPledge
ATradingDeskofTennisPlayers
WasItTrueThatStocksInPlayDidn’tTrendinSouthAfrica?
TheAmericanVersionofSMBTradersOfftheTracks
Some“Proper”Traders
Phillie: SomeCall ItPerspective
Stevie: ThereIsNoOptionButtoSucceed
CarpeDiem: AComfortfor Action
Brody: APursuittoYBT
Rudders: UltraCalmandGiving
Conclusion
How YouCanBecomeaProfitableTrader
YouAreaMultiproduct,Multimarket,BionicDiscretionaryQuantTrader YouCanBeBetter Tomorrow ThanYouAreToday
References
Index
Introduction
Weaknessesdon’tmatter ifyoufindsolutions.
RayDalio
The PlayBook will helpyoubecomeabetter,bigger,moreprofitable,increasinglyefficient, well-rounded, calmer, happier, and grateful trader. This book teaches you how to make more ofthe trades thatmake the mostsense to you, withlarger size, holdingthemfor the real move, so thatyouboostyour tradingP$L. Itwill giftyouwiththe tools to realize whatIargue should be your ultimate goal: becoming your best trader (YBT). The PlayBook is the derivative of something good coming frompersonal hardship (mine, as it turns out). Let me tell you how it all happenedandhow thePlayBookcantransformyour tradingperformance.
I was in my hotel room in Phoenix, Arizona, preparing to talk to the Scottsdale–Phoenix meet-upgroupwhenmyBlackBerryvibrated.Itwasmymom.
“Michael, I amso sorryto tell youthis.Your father has had a stroke. It’s not good. I don’t know whattodo.”
“Here,pleasetalktoyour father,”continuedmymom.
She put my dad on the phone. Well, more accurately a man’s voice came to the phone. It couldhavebeenmydad,butitwas hardtotell.Themanonother endofthis phoneclearlyhad had a stroke. “Hello” was “Hawooooh” and withgreatstrainfromthe speaker. The mangave thephonebacktomymom.
“Mom,letmecheckwhenIcangetoutthereandcall youback.”
“Okay,thankGod.Thankyou,Michael.”
Ihungup the phone, went to Kayak.com, and punched inanairline searchfor fromPhoenix to Tampa. Myhands felt frozenfromthe shock. I could arrive veryearlythe next morningif I left in the next hour, or in the early afternoon with the first flight out the next day. I thought: Seriously, you can’t get fromPhoenix to Tampa in a few hours. Driving would take forever, thesamewithabus,andtherewerenotrains.
Guilt for my inadequacy to immediately be in Tampa persecuted my mind and body. In 46 minutes, I had a commitment to give a lecture to a group important to me to support and for which I’d flown across the country. But my family needed me. I needed to be in Tampa for them urgently. Should I bolt to the airport, cancel my presentation, and land in Tampa early morning the next day? Should I do the talk and head out on the first flight the next morning? I called my wife. I called my sister. I called my mom. This was my prisoner’s dilemma. We decidedonthefirstflightoutthenextmorning.Ihatedthisdecision.
I arrived at the venue for the Scottsdale–Phoenix meet-up, which to me appeared like a quintessential location shoot for those political town hall meetings. And now running for the
Scottsdale city council, please help me welcome candidate Mike Bellafiore. What was I doinghere? None ofthis was helpingmymomor dad. Iwas physicallypresentwhile mymind wasobservingtheabsurdityofmypresence.
So I went and did it: I stood on my feet for three hours talking to a room full of mostly retired investors. Ihad painstakinglyprepared a talkonshort-termtradingsetups, butafter one lookaround the roomofthis friendlysenior citizencrowd, Iscrapped myprepared remarks to engage this demographic. I got lost in our talk for a few hours, with appreciative attendees coming together as a community, a trading community. They were admirably in attendance to learn more about the markets, meet some new people who invested like them, and perhaps spend a night away from mindless reality TV. There cannot be enough great meet-ups for investors/traders across the United States. People like me have anobligationto support them. Such communities make our markets better for the plain reason that a well-educated trader classmanifestsabetter market.
I gave that audience everything I had, answered every last question, and shook each hand with a smile such that no one detected my personal hardship. Just like my dad would have done. Engrainedinmymemoryis a snapshotofmydadonhis hands and knees, paint, dirt, and mucksmotheringhis workblue polo, improvinga familypropertyfor one of his tenants. This isworkethic.Youdothingsaswell asyoucanbecausewhatelseisthere?
At9 p.m., Iwalked outofthe hall exhausted, on-the-road famished, and aboutto face one of the most difficult years of my life. I drove my rented mid-size back to my resort hotel, asked for a3:30a.m.wakeupcall,andpassedoutsoberly,still inmysuitandshoes.
BAA-RING!!!!
BAA-RING!!!!
MynextconsciousmomentwasthephoneinmyroomringingasIawokefeelingasifa300pound lineman had just sacked me. The early hour brought me that sleep-deprived physical pain, stomach discomfort, and uncomfortable head pressure. Somehow I got on a plane, with mybags,andtoucheddowninTampa.
Icalledmymom.
“Hi,Mom.I’mhere.”
“Oh,Michael,thankGodyou’rehere.Your father is atMortonPlantHospital.Doyouknow whereitis?
“I’ll findit.”
Iwalked into mydad’s hospital room, mymother sittingacross fromhim, pale and tryingto force an unworried smile. When her first-born son entered a room, my mother usually stood and made me feel like there was nothing else more important than me. She tried this nowimpossible taskwhile livingher life-changingmoment. Ilooked to the rightatmydad, smiled, but inside was astonished. He couldn’t talk. He couldn’t move. He couldn’t lift his hand. “Michael” was “Mikahhhhh.” The strongestpersonIhave ever knownwas now as fragile as a newborn.
This was so much worse than my mother had explained. I made happy small talk, unsure whento stop the farce.After this absurd hospital custom, mymomgrabbed myarmand pulled meintoaprivateroomafew doorsdownthehall.
“Mom, people make full recoveries fromstrokes. Let’s not assume anything. When can we gethimrehabbing?”
Okay, at this point (or well before, and if so, thank you for your patience), you might be wonderingwhyI’msharingthis personal storywithyou, anaccountthathas yetto saya single thingabouttrading.As ithappens, this drama is pertinent, as youare aboutto see.And ifever there is a personwho caninspire youto improve everydayas a trader, or serve as anallegory for thepathofthenew,developing,or underperformingtrader,itis arecoveringstrokevictim. Further,aneventlikethishelpstradersplacetheir workintheproper context.Noonehas ever losta loved one ina losingtrade. More to the point, the PlayBookmightnever have beenborn withoutthiscalamity.
Fast-forward (and bypassing medical bureaucratic details too numerous to recount), we finally freed my dad out of the hospital and into a 24-hour rehab center, where he (and I to a lesser extent) would live for the next 2 weeks. I write oftenonthe SMBUblogthat tradingis an exercise in getting better everyday. A stroke victim personifies the ultimate real-life, allconsequences example of a struggle to get better eachday.Your brainhas beeninjured. New connections inyour braincircuitryto control walking, speaking, and thinkingmust be remade. Harder still, you must do all of this in the autumn of your life, when you’re supposed to be slowingdownandenjoyingtherewardsyouworkedyour wholelifetoreap.
Building your PlayBook is a similar test. As a trader, you must make connections in your tradingbrainfor the setups that make the most sense to you. Thenyoucanexecute these plays as automatically as you breathe, walk, and talk. But before, each trade is a struggle of indecisionanduncertainty.Moreaboutthissoon.
Icalled Steve Spencer, now one the mostrecognized U.S. equities traders inthe world, the best manat mywedding, and mypartner at SMB. “Mydad has had a stroke. I amgoingto be herefor awhile.”
“Okay,stayaslongasyouneed.”
I didn’t wonder for even a moment whether I would help my dad in his rehab. There were onlymoments whenIquestioned whether Ineeded to do more. Mydad had givenme so much. Weatedinner together everynightduringmychildhood.Icannotrecall agameheever missed. He never declined a throwing session, which led to me becoming a college athlete. College. Law school.Now Iwouldbetheretohelphim.
Dayone ofrehab was one ofthe better days ofmylife, duringthe worstperiod ofmylife. I love the science ofperformance enhancementand saw itall-day, inreal-time, inches fromme. Wewenttospeechtherapy,physical therapy,andoccupational therapy.Dadcouldn’tdomuch, and everything was so difficult. Picking up a sandbag during occupational therapy was impossible. I had to lift his backto get himinto a bridge positionduringphysical therapy. He
still reallycouldn’ttalk. Ina lighter moment, we gotinto trouble duringspeechtherapyfor not followingone ofthe rules. Threats were made atus, and angrily. We laughed and laughed and laughed some more about potentially getting kicked out of the rehab home. As if there is anything really bad that can happen to you after having a massive stroke or seeing your hero after hehashadone.
Bythe endofthe day,Dadimproved.He hadthe infrastructure tomake progress,like a new trader must.And he was determined witheverybreathand thought to get better. Momused to sayshe never met anyone as determined and focused as mydad. The rehab center was seeing that.Heworked.
I returned home that first day to our Clearwater Beach family condo, which overlooks the GulfofMexicoatone endandTampa Bayonthe other.Mymom,obviouslyanxious andeager to hear my report, sprung up fromher reclining chair upon my arrival. “Mom, he is going to makeasubstantial recovery.”
“Oh,Michael,thatissuchwonderful news.”
For the next ten days, I woke early, grabbed a few protein bars, and headed over to the rehab center to spend the day with my dad. I had in my head that the more he moved and thought, the better he would get. Sortoflike the more screentime yougetas a newb, the more you improve. During rest breaks, I asked him to punch my hand. By day three, he could. I wouldmove myhandupanddown,andhe wouldslapatit.Youcouldsense his brainstruggle tofigureouthow togethisarmstohitmyhand.
Itwas also hard to miss how mydad outworked the others inrehab (and bya large margin). Many did enough not to get in trouble, literally stopping their reps when the staff stopped looking.Mydaddidextrareps.
After everyrehab setwhere Inoticed progress, Ipraised him. We builtfromthe positives. I would tap his stomach and say, “Good set” or “Good work, Dad.” The trading coach in me knew that to sustainhis motivationI had to encourage the effort and not the result. I knew that actoftouchingwouldhelpreduce his stress andcommunicate we were inthis together.Before I headed home after day five, I pulled his chair right up to mine, waited for his eyes to meet mine, smiled, and said unwaveringly, “You are going to make a substantial recovery. People can make remarkable recoveries fromstrokes. Keep working. You are going to get better.” I couldhavebeentalkingtooneofmytraders.
Isensed he wanted to getbetter for me Ofcourse, he wanted to improve for himself, buthe also wanted to get better for me. I wanted (no, needed!) himto get better, and he read that. I see this behavior in my traders with whom I am close. They do not want to disappoint me. Coaches who love their players will see themdo almostanythingnotto disappointthem. Love isapowerful motivator.
During speech therapy, my dad earned the nickname “Friendly Frank” because he gabbed witheveryoneinthefacility.FriendlyFrankgraspedthatheneededtotalkasmuchashecould to expedite his speech progress. So he talked to everyone. He was working to get better and enjoyinghimselfwithhislatestchallenge.
There were periods of frustration to overcome. On one particular day, my dad got discouraged at a lackof staff attentiveness. He directed unkind comments at their competence and performance. He was acting like a trader on tilt. I had to keep him focused on his task. When Dad started complaining about bad service, I refocused himon the only thing that was important: our day of improvement. I told him to count to ten when he got mad, and to take deep breaths between each number. All that mattered was that he play as much as he could with his rubber bands and speech exercises and jabbing drills we had created to speed his recovery. I could have been talking to one of my favorite traders moaning about highfrequency traders (HFTs). In trading, we say, “One Good Trade and then One Good Trade andthenOneGoodTrade.”(Ihear thereisaprettygoodtradingbookbythistitle.)
My wife flew down for Christmas. I hadn’t seen her for a few weeks at that point, which was just two months after our wedding. She got a kickout of seeingmydad workingso hard, stopping to talk with everyone, and answering every question asked to the rehabbers during grouptherapy.
“Frank,don’traiseyour hand.Youcan’tanswer everyquestion.”
“Whynot?”
Shelaughed.MydadandIlaughed.Weall laughedagaintogether.Hehadapoint.Whynot?
Ondayten, mydad stood, placed his right hand ona handrail, and walked 40 yards up the rehab hall and thenback. Wow! He was goingto walkagain! I couldn’t wait to go home and tell mymom.
The prior four nights my mom had been very ill. She had a history of stomach issues and couldn’t keep anythingdown. She wasn’t sleeping. Her backwas terminallyscrewed up, and she was in constant pain. I found her pacing our condo in the middle of the night trying to relieve her backpain. Doctors sayone of the mistakes a familymakes is not lookingafter the spouseofthestrokevictim(inthiscase,mymom).
Before my wife and I left the rehab center that day, my dad asked me to go check on my mom. Ever selfless, he was first worried about her and her health. As hard as life had been after takingthatcall aboutmydadfrommymom,itwasnow abouttogetworse.
MywifeandIgrabbedsomedinner atthemall inTampaandthenheadedbacktothecondo. Iopenedthedoor andfoundmymomfacedownonour kitchenfloor.
Isprinted rightto her, turned her over, and found a huge weltabove her lefteye, whichhad absorbedher fall.Icalled911.“Mymomisunconscious.Sendanambulance.”
“Okay,sir.Whereareyou?” Ianswered.
“Isshebreathing?”
“How doItell?”Andonitwent.
“Clasp your hands together and pushagainsther chest. Iwill help youwiththe tempo.”And the guy was going, “And push and push and push and push.” My momwas covered in sweat andobviouslydead,andhereIwas,inmyopinion,justhurtingher body.
“Mom,pleasewakeup.Mom,pleasewakeup.”
Seeminglyhours later, reallyapproximately15 minutes, the paramedics and police arrived. Like some CSI episode, the paramedics tookover and applied machines and technologyto my mom. Incases like this, the police lookaround. Theyaskyouquestions.Youshow themyour license. They are doing their job, and their presence is comforting, but you cannot help but think, “Does anythingelse matter but that mymomis obviouslydead? How inthe world amI goingtotell thistomydad?”
We followed the paramedics to the nearest hospital. Well, we started to, but then got lost. We eventually arrived, and then waited in the waiting room(never has a roombeen so aptly named). Itwas bizarre: Iwas certainmymother had passed, butwe were waitingaround as if shehadananklesprainandwereanticipatingX-rayresults.Icalledmysister.
“We’reatthehospital.Momhadanaccident.”
Now, youwait, and youknow whattheyare goingto come and say. Theyhand youa plastic bag of your mom’s possessions. Strange thoughts drift about like, “God, is that a ginormous diamond necklace she wore!” Theyescorted us fromthe waitingroominto anexamroomand told us the doctor would come withnews. News? The doctor is goingto come and tell us that mymother isdead.
Some young, sweetIndiandoctor and kind-eyed nurse entered the room. Well, this can’t be good. The nurse was obviouslythere to help us withthe grieving. Ifitwere good, there would benonurse.Thismustbeprotocol.
“Iamso sorryto tell youthatyour mother has passed away.Youcango and see her now.” I entered the roomand feltmore griefthanone should possiblyhave to bear.And Ifeltanawful and strange protective guilt for the trauma to which I had just exposed my wife. How could I havemissednotpayingmoreattentiontomymother?
Mysister flew downonthe nextday, Christmas, withmythenone-year-old niece Kate. My little sister had ordered me not to tell my dad until she arrived. Mom always said, “Never awake anyone with bad news. It can wait until the morning.” It’s funny the things you never questionsaidbyyour mom.
We found my dad. I wasted little time. “Dad, we lost mom last night.” My heart broke lookingatmydad’s faceas heabsorbedthis news.WebroughtinKatetoplayonPoppa’s lap, desperatefor somewaytodistract.
Over thenextseveral days,weflew mydadbacktoLongIsland,buriedmymom,movedmy dadintoarehabcenter inour hometown,andkeptmoving.
During all of this, the markets don’t close, the competition in the trader education space doesn’t discontinue business, tradingsystems need tweaking, and mytraders require coaching and direction. Deals have to be negotiated, calls returned, and problems solved. But I wasn’t abletowork.Ihadlostmymom,andmydadneededmyhelp.Iwasemotionallyunavailable.
Later, at a conference inSingapore, I proclaimed that startingSMB was the stupidest, most arrogant, naive thing I had ever done. Starting a firm like I did, essentially from my Upper West Side apartment and with no outside funding, was overly-ambitious. I cannot help but
thinkthe years ofmymomtellingme Icould do or be whatever Iwanted led me to startSMB. Now that unconditional voice of confidence was silently resting. Meanwhile, the strongest personIhadever knownwasbrokenandyearsawayfromasignificantrecovery.
Asifthingswerenotbadenough,theywereabouttogetworse.
The Perfect Storm
Aperfectstormofevents compiled to stop and reverse SMB’s forward progress.As a firm or business, particularly in the money business, you never want to be backtracking; after all, the firm’s very existence depends on forward momentum. Running a prop firm is very expensive. Specifically, even a flat month in P&L can cost 200k plus after fees, expenses, staff, and rent. From profitable to broke can come fast. Add to this strain 1) some of our profitable traders left, 2) the industry as a whole was struggling, 3) a large legal bill was ahead, 4) new regulationincreased costs, and we were headed inthe wrongdirection.All of thiscamewhenIwantedtobeelsewhere,withmydadandfamily.
I always love how people think running a business is so easy, particularly a trading firm. Respectfully, it isn’t. And your individual trading business will not be easy for you to run either. We will be upfront about not having all the answers, mistakes made, the need for timeouts duringpersonal struggles,andthenecessitytopersevereas atrader or firm.Solutions mustbe found, youmustuncover a wayto subsistand evenreinventyourself. This is true even for the best traders and firms. This is the life we have chosen. As it so happened, The PlayBook wasthekeyfor how weweatheredthisstorm.
Agreat clash lay ahead, one that would have been daunting even if I were at full strength. But I wasn’t. Mymental state held us back. For example, SMB was sucked into a contentious negotiationwithour third-partyprovider. We leased space and routed our trades throughthis third party. I had to excuse myself from these meetings because the idea of fighting over a nickel on tickets just wasn’t in me. Nor was I in the proper state of mind for the day-to-day grind of running a prop-trading desk, educational arm, and our new systems-trading division. Whenyouhave just experienced trauma, stress cantrigger a returnto a state of trauma, which isunhealthy.
CiaoBella
That perfect storm? First, some of our consistently profitable traders left. At that time, the career path for our traders was this: become a consistently profitable trader and then get bigger. How 2007! Other firms (poachers from the League of Lesser Firms) learned of the success of many of our home-grown traders. These firms started offering our built-fromscratchguys race-to-the-bottomtradingdeals thatwe could notmatch. Itwould be hard to find objective traders who would not acknowledge that we offered the best training and infrastructure for the beginning trader. Most of our competitors even admit this. The problem was we were not offering enough value to those who we had trained to become consistently profitable heading into their year three or four with us. SMB thought loyalty and our present valuewouldkeepthetraderswebuiltfor their entirecareer.Weweremistaken.
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