Mike Bellafiore on Making More Money Now

Aug 16, 2011: 11:42 AM CST

I wanted to share a link to a post from Mike Bellafiore of SMB Capital entitled quite ambitiously “You Need to Make More Money Now.

Toward the end of Mike’s book One Good Trade, he details how markets have changed over the last decade in terms of volatility/narrative and how traders must adjust accordingly.

It’s one of the best descriptions I’ve read that provides a concise summary of how important it is to identify and adjust to the current market environment.

For example, the “Surging Bull Market of the 1999 Tech Bubble” was significantly different than the creeping, low volatility bull market from 2004 to 2007.

Trading during the latter part of 2008 during the Financial Crash was majorly different than trading the creeper/divergent rallies of 2009/2010 or the Flash Crash period in mid-2010.

The common theme is that – as a trader – you must identify the current environment and then adapt.  Failing to do so will result in missed opportunities/reduced profits at best and at worst, large losses or as Mike notes, the end of one’s trading career (if one who was successful in one environment cannot adapt to a new environment).

While Mike is sharing his thoughts on the recent volatility in August, the insights apply to all sorts of changes in market conditions.

I encourage you to read the full post, and I wanted to share a few quotes from the article:

“There are many who killed the late 90’s and couldn’t trade the post 2001 market.”

“At the end of your day, during this all-important market opportunity, you must obsess about how you could have been bigger responsibly.”

“Do you know how to momentum trade and intraday swing trade [ETFs and leading stocks]? If not, learn fast.”

“The good prop firms and traders merely hang in there during these bad market moments. You cut back, stop sleeping through the night, hold on with both hands to the slippery grip, and pray for the turn”

A concluding thought – professional traders tend to enjoy sudden increases in market volatility and often adjust by increasing their trading activities along with increasing their size (responsibly) as intraday plays become more active and price travels further to expected targets.

Professionals have time-tested, edge-based strategies already in place, and the heightened volatility is a benefit because it allows for quicker profits along with the chance, as Mike notes, to size positions larger.

HOWEVER, newer traders tend to fear periods of suddenly high volatility and that’s fine.  Newer traders are learning the craft and need to adjust in the opposite direction than a professional which often involves decreasing position size to accommodate for the volatility.

A new trader risks an early end to a promising career if he greedily chases profits by significantly increasing position size as a result of high market volatility.

Getting caught the wrong way (and refusing to take stop-losses) of a volatile intraday move when a trader is leveraged significantly higher than normal can spell disaster.

As Mike notes, a professional trader (with experience, edge, and viable strategies) can take advantage of the heightened volatility by responsibly increasing size and profiting from the volatility.

A high volatility market offers both heightened reward and risk, and depending on experience levels, traders should adjust accordingly.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

3 Comments

3 Responses to “Mike Bellafiore on Making More Money Now”

  1. zstock7 Says:

    short term NDX likely to head lower, before going higher. I've seen stocks try to get above their middle band —and they don't usually make it above price wise, until the band flattens out a little.
    http://zstock7.com/wp-content/

  2. Wednesday links: mining M&A | Abnormal Returns Says:

    […] Market conditions change, do you?  (Afraid to Trade) […]

  3. zstock7 Says:

    i watch a lot falling knives—and the NDX price is following a post falling knife pattern