Book Review and Contest: One Good Trade by Mike Bellafiore

Sep 21, 2010: 2:23 PM CST

I wanted to publish my review of Mike Bellafiore’s new book One Good Trade:  Inside the Highly Competitive World of Proprietary Trading and Mike also suggested that we hold a contest for a blog reader to receive a free copy of the book as part of a successful social media effort that already has resulted in the first shipment of books selling out at Amazon.com.

This post will serve as both my review and the contest for a blog reader to receive a free book.

Book Review:  One Good Trade

Let me first say that few books are similar to Bellafiore’s One Good Trade.  For one, there are a minuscule number of books that take the reader inside the inner workings of a successful, publicly known proprietary trading operation.  Most large proprietary funds and hedge funds are immensely secretive operations that never reveal secrets of any kind.

Mike takes the reader through a journey, almost as if he is sharing stories, strategies, experiences, and lessons with an old friend during a tour of SMB Capital, a leading proprietary trading firm in New York City.

The discussion includes personal stories from hiring and firing traders at his firm, success and failure stories of new and experienced traders at the firm, strategies and tactics –  in terms of chart reading, motivation, and mental preparation, and a discussion on what it takes to be a successful, professional trader.

The Four Parts Detailed

The first part of the book – “Inside a Trading Firm – takes you by the hand through personal experiences and stories at SMB Capital.

College students and recent college graduates aspiring for a trading job would do well to pay close attention to experiences Mike shares regarding the job interviews – both good stories and bad  – along with what it takes to get hired at a proprietary firm.

The first part includes the “Cast of Characters” Mike references, often in brief dialogue form, throughout the book.  He also discusses insights into the philosophy, character, recruiting, and training SMB does with its traders.

After walking you through the trading firm, Mike progresses to the second part, in which he shares the “Tools for Success.”  The two chapters entitled “Why Traders Fail” and “Pyramids of Success” explain in explicit detail what divides professional traders from amateurs who burn out their accounts early.

The third part of the book – “Getting Technical” – reveals specific strategies SMB uses each day to find stocks in play, how they read the stock market tape, how they keep score, and what they look for in a good trade setup each day.

Finally, Mike concludes with a segment  entitled “The Trader’s Brain,” which addresses the mental side of trading that is arguably more important than method.  One can learn methods and strategies easily, but the consistent application of these strategies in real time – in an environment of stress and uncertainty – is what divides the professional from the amateur.

What Stands Out About the Book?

After reading the book, three things came to mind that set this book apart from others in the trading community.

First, Mike explains a wealth of wisdom through engaging stories, personal experiences, and character dialogue.  He does this while revealing what it’s like at a leading prop firm – very few books do this.

Mike doesn’t just reveal the good experiences; instead, he shares stories of failures along with the successes to give the reader a larger viewpoint.

Make no mistake, Mike explains how hard it is to be a successful trader, namely in the pre-market routine, active trading/monitoring through the day, post-market trade and performance review, and weekend reviews.

In what I thought was refreshing, he frequently compares trading performance to sports performance, as the book is peppered with references to athletes and how traders can learn lessons from the discipline and persistence (and work) to be successful in sports.

Second, Mike shares a detailed explanation on “Tape Reading Techniques.”  Very few books reveal this information, and few traders today practice this method of trading.

While charting (technical analysis) is becoming highly popular for today’s traders, Mike reminds us that old-fashioned tape reading tactics have their place in today’s competitive world of high frequency trading.

Swing traders (or position traders) may get bogged down in reading details of active intraday trading here, however.

Third, drawing from his many years of experience as a trader, Mike explains in detail how the markets have changed since the NASDAQ days through the 2008 ‘crash’ into present day 2010.

In addition to the historical references, Mike explains how he adapted his trading tactics to the changes in the market.  This is one of the most valuable, but probably understated lessons in the book:  professional traders adapt to market changes while amateurs do not.

Conclusion

Whatever your goals or experience, you will learn valuable lessons you can apply to your trading style.  While Mike’s strategies focus mostly on the intraday timeframe of stocks, you can apply his lessons to your own trading practices and improve.

This book is probably most effective to active intraday stock traders and least effective to long-term position traders (or those using strictly fundamental analysis) in other markets.

Anyone who desires a career in a proprietary or hedge fund must read this book, as Mike dedicates an entire chapter to the hiring and interview process SMB conducts with new traders, including funny stories of “bad interviews.”

As I wrote in my endorsement of the book:

“If you’ve ever desired to journey into the professional world of a leading proprietary trading firm – how they organize their strategies, train new traders, select stocks in play, and even fight the mental game of trading – then One Good Trade is certainly the book for you.”

Contest Closed

The Contest has closed and I am so thankful to everyone who entered by submitting either a personal story of a time you overcame fear in a trade, or shared personal tips on how you overcome fear.  It was helpful to see how different traders use different strategies and rules to achieve the same goal – overcoming fear!

Mike and I are pleased to announce the contest winner…

Fxretracer!

I compiled all submissions in Excel and gave each person a number depending on the order the comment was received – not including duplicate comments or non-entry comments.

I then asked Mike via email to select the winning number (not being able to view the entries or numbers on my list) and he sent back #17, which was Fxretracer on my list.

And the winning (random) comment:

“I overcome fear in two ways, first I dont allow myself to exceed more than 1% or 2% of used margin. The second thing I do is trade only those patterns on the chart I have come to recognize.
A third thing I do is look for reasons not to trade, but that prevents me from getting into a fearful situation in the first place so am not sure if it applies to your question.”

Thank you to all who participated and thank you to Mike for allowing me to host this contest.

Corey Rosenbloom, CMT

As a disclaimer (for reviews), I received a complementary evaluation copy of One Good Trade.

39 Comments

39 Responses to “Book Review and Contest: One Good Trade by Mike Bellafiore”

  1. Steve Boyduy Says:

    The only way I personally can overcome emotions is through automation. My Automated Trading System submits the order, target & stoploss. I watch the behaviour of the ATS as a Prop Trading manager watches the behaviours of his staff.

  2. Afraid to Trade Reviews One Good Trade | SMB Capital - Day Trading Blog Says:

    […] to Trade and SMB are teaming up to give away a free copy of One Good Trade. Visit Afraid to Trade’s website to learn more and read the entire review of One Good […]

  3. Disgusted_Dinosaur Says:

    I realized that I was missing trades because I was fearful and hesitant to jump in and execute. After seeing the money I could have had if I had just taken the trade, I began to set reasonable stops and just jump in. You can't make money if you don't try. More often, my trades are successful than those times when I stop out. I try to tell myself not to listen to my emotions because I am trading against non-emotional computers. If the setups look good — just jump in.

  4. del Says:

    wow..wat happened 2 my post..I had put one here earlier..lol..

  5. Corey Rosenbloom, CMT Says:

    I don't have any auto-filters on this post so if you posted, it should have gone through – feel free to resubmit or email me directly and I'll post up the comment for you.

  6. Malayile Says:

    my post is missing too , it was added after the 1st comment on your site

  7. Corey Rosenbloom, CMT Says:

    I haven't deleted any comments and have only received email confirmations on Disgusted Dinosaur and Steve Boyduy. I'll go back and check the spam filters more closely though I thought those were off. If there's any post not showing up, feel free to email me directly corey AT afraid to trade dot _com and I'll post it up immediately.

  8. Dinomyte633 Says:

    I've learned that I cannot repress or pretend my emotions do not exist. When I make money I'm happy/excited and when I lose money I get saddened/disappointed, or whatever. It's just the way I am and that, I cannot control. What I can control are the big swings in emotions. I do that by Risk Management. I know my risk tolerance and manage that by position sizing and stop losses. I know Biotechs are extremely volatile and can drop 20% in a heart beat. So I reduce my position size knowing how quickly things can go against me. I try not to trade around earnings due to the whipsaws that can happen.
    Once those measures are in place and I plan my trade there is very little fear to overcome when entering a trade.
    When (not if, cause it's gonna happen) the unforeseen happens, like a huge gap down over night, I simply close out my trade and go for a run or lift weights to get my mind off of the trade. Once my mind has cleared I return and it's much easier to avoid revenge trading or making irrational decisions

  9. Corey Rosenbloom, CMT Says:

    My apologies to everyone! Some of the comments were getting trapped in the Spam filter and I was unaware of that. I will be monitoring comments frequently in this post and releasing any that get trapped in the spam filter.

    Thank you so much for your contributions!

  10. SantaCrude Says:

    I have followed Corey for a year now and have learned a lot! I use Fib retracements, Keltner channels, moving averages, 3/10/16 MACD, on 4min, 60 min, daily, and weekly charts. Then watch many different futures contracts to find overbought and oversold situations. The daily and weekly set up the trades for the 4 and 60 min trades. Just like Corey says the confluence of many different indicators show when to enter and exit the trade. Once you perfect your trading setup and back test the odds of success you will then start to profit and become successful. Thank you Corey, for helping me get this, consolidation, expansion, trend, and backing and filling.

  11. Cstirone Says:

    I'm an active swing trader in stocks and intraday trader in futures. I have been trading for more than 10years and I have found that the two most effective things to reduce fear or anxiety in a trade is to use a small position size relative to my account and I also prefer to use OCO bracket orders. Every trade I enter has a pre-determined size based on the volatility of the timeframe I'm trading, and every trade has a pre-defined profit target and stop-loss. Both orders are instantly submitted to the exchange or my broker's servers the second I get filled on any order. I sleep well at night, and I make money.

  12. Luis Says:

    I was afraid I was going to be stuck in a losing position while I was in the office (I'm not a full time trader currently) and wouldn't be able to get out through my remote phone connection. Eventually I started finding longer term setups and holding the trades longer and reducing my size. When I see what's happening in the market, I think sometimes that I may be leaving some money on the table, but while I have other work responsibilities I'd rather miss a couple good opportunities rather than be anxious about an existing position which I cannot properly monitor.

  13. Abraham Says:

    Trading a high momentum stock with no news at open during the first 20 minutes after open can be a roller coaster ride. Most of the times the first move is a fake one. I let that move consolidate and trade the breakout either above or below the trading range, it takes out fear / anxiety out of the trade. It is always safer to know the market direction below entering a trade than trying to go against the currents.

  14. ibiza2000 Says:

    Ways to keep fear in check

    1. demo trade as long as it takes until you know what you're doing.

    2. use small position size until you've built up your risk tolerance

    3. do your homework every day and never fall behind on it

    4. don't attach too much importance to any one trade

    5. find a method that works for you so you're not relying on others to tell you what to do

  15. JPO trading Says:

    I do not know why, but I have no fear (should have more!) in starting short positions, while I strugggle in entering long positions. As soon as I enter a long trade and even if it is moving in my favour , I am taken over by a feeling (fear?) that it will collapse. I correct this by forcing myself to make at least one long trade for every short trade I take.

  16. Marcos Says:

    I know in the past I have always been afraid of missing the initial move in a stock, whether it be off of news or technicals. Having this fear led to me chasing a lot and having unfavorable risk/reward. After reviewing my stats i found that when I had some patience, and didn't chase, and waited for a clearer entry (such as a consolidation or flag pattern) that i could measure my risk/reward much better and make much better trades. I know its easier said than done, but I know now that if i miss an initial drive I sit on my hands and just watch. I've lost too much money chasing and I suppose that's how you learn the hard way.

  17. Daniel Says:

    The day I finally believed in myself was the day i started to profit consistently.

  18. fxretracer Says:

    I over come fear in two ways, first I dont allow myself to exceed more than 1% or 2% of used margin. The second thing I do is trade only those patterns on the chart I have come to recognize.
    A third thing I do is look for reasons not to trade, but that prevents me from getting into a fearful situation in the first place so am not sure if it applies to your question.

  19. fxretracer Says:

    I over come fear in two ways, first I dont allow myself to exceed more than 1% or 2% of used margin. The second thing I do is trade only those patterns on the chart I have come to recognize.
    A third thing I do is look for reasons not to trade, but that prevents me from getting into a fearful situation in the first place so am not sure if it applies to your question.

  20. Calculatedrisk1 Says:

    i was afraid of missing out on market moves, jumping in too soon at times. getting there now 🙂

  21. fxretracer Says:

    I have found thats the way I trade too, once I see the set up and it qualifies..I have no choice but to take that trade. It is emotionless and not filled with fear either because I know the trading model is requiring I act based on the parameters I am observing unfolding on the chart and nothing else.

  22. GeorgieTrade Says:

    My best trade so far this year was found on Corey's sight when he showed the chart of GS. I shorted it below 147, but thought it found support at 138, and it did. But as Corey points out, the low of 135 or 130 was an “idealized trade.” Tips for controlling fear is to reduce position size when you are a new trader and study, study, study.

  23. nonya buidness Says:

    It's easier for me to control emotions if I adjust position size to volatility. The more volatile the stocks are, the smaller the position size would be. This allows you to still make money but with less risk, so it's easier to keep emotions in check. After a day of trading I like to get outside or in the gym for some exercise to clear my mind and refresh the spirit with a healthy endorphin kick. Listening to music while trading can help and I also will sometimes seek some form of spiritual connections to keep my head clear as well.

  24. Shane Says:

    I try to overcome my fear by respecting any and all resistance levels. I always place my stops at the closest level to my initial position no matter the “strength” of the level

  25. Markus Says:

    I think anyone who wants to be a professional trader must not be afraid to trade, take positions or risk. This sounds very simple and self-evident, but when trading in real time fear can become an underestimated problem(missing out opportunity, lossing streaks etc.). Therefore it is important to keep your positon seize relativly small to your account and have a daily stop loss limit. however one must also be able to commit more capital on the very best setups(A-trades)…

  26. Miguel Says:

    On friday September 17th 2010 I shorted SHPGY on 69.61 and my objective was to get out ar 69.11. The stock moved towards my goal but it bounced at 69.12 two times, shrinking a winning position to almost a breakeven trade. It was very stressful to hold a position that was 1 cent away from my goal, and even though I was very afraid of leaving a lot of money on the table I was able to wait. The minute I got out with my objective the stock tanked 50 cents more. The lesson: “plan your trade, trade your plan”

  27. Hzhao2 Says:

    Always put a real stop, NOT a mental stop with my order, once my hard stop is in, I am not afraid of it anymore.

  28. Hrachp Says:

    Fear of FAILURE!… It was only after I recognized my fear of failure that I was able to view the markets objectively. It was the Fear of Failure that was the root cause of all other fears associated with trading.
    Fear of missing a move which makes you a failure.
    Fear of getting in too early which makes you a failure
    Fear of getting in too late which makes you a failure
    Fear of getting stopped out which makes you a failure
    Fear of getting out too early which makes you a failure
    Fear of not getting out quick enough which makes you a failure
    The way I overcame fear in trading is by recognizing that it stemmed from fear of failure. The actual process of overcoming the fear of failure is to accept failure as a possibility and assume the trade you planned was a failure before you put it on so if it in fact reaches your price objective first it was a success, and if your planned stop gets hit you won't be surprised since it was deemed a failure anyway.

  29. Mckinneytrader Says:

    If I have had a recent big loss or string of losses, I am afraid to trade again and incur more losses.

    To get my feet wet, I will either trade much smaller size or I will patiently wait for a trade set-up that offers me a very tight stop — less than 0.15 cents — and has a high probability of working in my favor.

    I am also afraid not to trade — afraid of missing a move. I'm still working on my discipline not to jump in too early because I'm afraid of missing a move. I try to remember “infinite patience” and breathe deeply and slowly. This is a battle between fear and discipline and I may never 100% conquer it but I'll never give up working on getting better.

  30. Jac Says:

    I trade the top40 index futures in South Africa,very much like the sp500.I found that chasing a move mostly led to a loss.I now wait for a setup and usually the best spot to enter is also the most uncomfortable for me.Its like going against my instinct.To wait for confirmation before entering, results in a lot of fear,anxiety and sweat.

  31. IamSamIam Says:

    Discipline. That's the magic word. If you are a beginner you need it and you need to acquire it as soon as possible. If you're an experienced trader you probably have it. There are many sites and traders that offer the essential “10 commandments” of trading. Most of them are basically the same. If a trader is disciplined to follow them s/he will be fine.
    Everybody makes mistakes / bad trades. I am no exception. But I (try to) stick to my plan and system. It's when I deviate when my losses come. One of my favorite trader mantras is “Tomorrow is another trading day”. Your last trade is water under the bridge. So discipline is the hardest when you make mistakes/bad trades. When that happens, sometimes the best thing is to turn off the real time quotes or turn off the computer and take a break. The break can be for minutes, days or weeks even. Get back to the computer when your head is clear again.

  32. Whtcutter Says:

    1. Start with an account of $50,000 or more that you can afford to lose. If you cannot afford to lose that much then stay out.
    2. Never trade when the market is open. Only place your orders when the market is closed. Do all of your analysis after the close and before the next open. Don't watch the market trade at all.
    3. Design a system of your own using some combination of averages. For me a spread sheet works best. I study the history in my spread sheets and have separate signals for entry, exit, flat and negating signals that tell me not to enter the trade. Make your own so only you is to blame for any failures
    4. Forget the charts. They can't tell you where the market is going. Only where it has been.
    5. Again, start with a lot of money and be happy if you beat the CD rates. Don't trade if you don't know what you are doing. There really are people who know what is most likely to happen next.

  33. Tyro Says:

    Sorry I got late to the party!

    My most common emotional difficulties arise when I start beating myself up and berating myself for missing a trade, botching execution, things like that. I go to my trade journal and slowly make a list of the things I've done well even if it seems minor or mechanical, a list of the things that I attacking myself which are irrational (eg: not selling at the very top or other feats of precognition), and a couple practical, mechanical aspects which I can improve.

    I think it helps because it's a routine and so lets me drop back into a 'calming' mindset, it focuses on execution and not results which reminds me that losses can and will happen even to the best traders, and it lets me work on developing as a trader without feeling bad as a person. The last used to lead me to self-destructive things like pulling stops and taking bigger size to get back to breakeven and when it moved against me (it almost always would) then I'd do nothing because I was a bad, worthless person who broke his rules and deserved to lose a lot of money. Now I still fewer mistakes and when I do, I can calm down faster and remain more positive.

  34. Rob L Says:

    When I originally started trading, I made the mistake of trading without enough knowledge. I'd see stocks move and I'd want to get in on the action, but I couldn't figure out what was causing the breakouts. This caused me to fear small reversals because if I didn't know what was causing the movement, how could I tell when I should get out? This fear caused me to sell way too early on a lot of my trades. As I expanded my technical analysis knowledge, I started to better understand the breakouts and when I should get out. I guess the point of the story is knowledge can conquer fear.

  35. Shodson Says:

    First, I had to realize that I wasn't going to become rich overnight in trading. So I had to lower my expectations to a more realistic level. That lesson cost me a lot.

    Then, I learned to reduce my position size to a level that, if the trade turned out to be a loser, I was OK with and I wouldn't let it ruin my day. Every trade is a check I write to the market. Sometimes it comes back, sometime bigger, but sometimes I never see the money again. I had to write checks small enough to be comfortable never seeing again.

    I also had to find a trading system and plan that I was comfortable with and that, during periods of draw-down, I had considerable confidence that the odds were in my favor and I just needed to be patient and stick to my plan to turn the corner.

  36. acrowder Says:

    Hope this helps a few of you. Article on the importance of position-sizing. http://www.crowderoptions.com/category/position-sizing/

  37. GreenAB Says:

    getting emotions (fear of missing opportunity, fear of selling at a loss) under control was a problem for me for years.

    it changed with two things:

    -a quote of “market wizard” Tom Basso to handle every trade as a single one among thousands to come. that helped to get a professional mindset of a trader, dealer.

    -digging out of a steep drawdown not by injecting additional capital but slowly, steadily trading myself back up again. the confidence you gain in such a lengthy process is priceless.

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