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One Good Trade: Inside the Highly Competitive World of Proprietary Trading Hardcover – August 2, 2010
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From the Inside Flap
Proprietary trading firms do somewhere between 50 and 70 percent of all the equity volume in the U.S. markets on any given day. But unlike most firms on the Street, proprietary firms have no clients. They do not take other people's money and speculate it on their behalf. Proprietary trading (or 'prop trading' for short) is done for the benefit of the company's partners and employees only: the firm is the client. Their profits are generated solely from the bets they make on their traders. If they are wrong, they lose their own money. When they are right, they keep a percentage of their winnings. The world of prop trading is mentally and emotionally exhausting, but the rewards can be substantial, if you understand how to identify good trades, take profits at the right time, and limit losses.
In One Good Trade, Mike Bellafiore reveals the inner workings of the proprietary trading firm he cofounded, detailing the challenges of prop trading and explaining why traders succeed or fail. In the process, he shows how you can use the skills and strategies developed at his firm to improve your own trading success.
The author takes you inside the world of prop trading to show how the professionals trade successfully, sharing all the important market lessons he has learned over the course of his career while introducing a fascinating cast of characters, some of whom have succeeded, and too many who have failed. He offers a range of straightforward trading strategies, such as breakouts from congestion, trading off support and resistance, and identifying consolidation setups. Perhaps more importantly, he explains the importance of other, often overlooked skills critical to successful trading: developing consistency in monitoring markets and uncovering trading opportunities, discipline in executing trades, making rational risk/reward bets, and managing trading capital. He reveals those skills through illustrative stories of the growth of his trading firm and the ups and downs of traders he has trained.
Becoming a better trader requires discipline, a thick playbook of trading setups , and well-rounded trading skills, and One Good Trade will show you how to develop all three.
From the Back Cover
Praise for One Good Trade
"Bellafiore is a committed and dedicated trader and teacher of the profession. His book shows the same attention to detail and the finer points of making a career in trading."
—Howard Lindzon, cofounder and CEO, StockTwits
"A terrific book for traders who desire to gain a complete understanding of the inner workings of proprietary trading and what it takes to become a consistently successful trader."
—Charles E. Kirk, The Kirk Report
"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."
—Corey Rosenbloom, CMT, President, Afraid to Trade
"One Good Trade is the only book I know that truly takes readers inside the proprietary trading world and explains what it takes to achieve career-long success."
—Brett N. Steenbarger, PhD, author, TradeFeed blog and The Daily Trading Coach
"With One Good Trade, Mike Bellafiore gives you a front-row seat to see what it takes to become a successful trader in today's volatile markets. The stories and examples of how some traders achieve incredible wealth and how others crash and burn are great lessons for any aspiring trader."
—Tim Bourquin, cofounder, www.TraderInterviews.com
"One Good Trade provides an insider view to the world of proprietary trading. If you are new to trading, you will learn that successful trading requires a lot of hard work, resiliency, discipline, continuous introspection, and a courageousness to challenge yourself and adapt."
—Jason Gardner, Managing Director, Head of Trading, Kershner Trading Group
"Exceptional care coupled with a standard of excellence and attention to detail is the mantra that is at the foundation of SMB. Mike and Steve have created a unique and insightful angle to the development of new traders."
—Nadav Sapeika, Chief Operating Officer, T3 Live, LLC / T3 Capital Management, LLC
"This book is a must-read for all developing traders and those who are interested in a good read about the behind-the-scenes goings on of a successful trading business."
—Brian Shannon, author of Technical Analysis Using Multiple Timeframes
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Top Customer Reviews
The T3 Trading Group Annual Report (Form X-17A-5) can be downloaded from Edgar on the SEC website. In 2012, 99.89 percent of T3 Trading's revenues came from the monthly fees and the trading fees its proprietary traders paid to the company ($15,106,432). Only 0.106 percent of T3 Trading's revenues came from its share of the trading profits ($16,082). T3 Trading charges its traders for every share they trade. Traders are discouraged from trading a low number of shares per trade even if their trades lose a lot of money and even if they are placing the same number of trades.
T3 Trading charged each of my co-workers about $1,000 a month in trading fees. The $1,000 a month does not include the losses from the trades. On some days traders were profitable, but on most days they were not. Many traders are also charged several monthly fees. Total monthly fees can be as low as $120 a month. After one month at T3 Trading, one unprofitable trader was allowed to double the number of shares he traded ($2,000 a month in trading fees). Some traders may have trading profits that will offset some of the trading fees (and monthly fees). My manager told us on several occasions that many traders deposit additional money when the fees and the trading losses deplete their initial $7,500 capital contribution.
Turnover at T3 Trading is high. The Linked In website profile of CEO Sean Hendelman reveals that T3 Trading has more than 400 proprietary trading jobs. My manager told us that it takes 6 months for traders to become profitable at T3 Trading. If the average trader quits T3 Trading in 6 months, then 800 people held those 400 trading jobs in 2012. In 2012, each of those 800 traders paid T3 Trading $18,883 in monthly fees and trading fees. Some traders may have trading profits that will offset some of the trading fees (and monthly fees).
What are the odds of being a successful trader at T3 Trading Group? In 2012, all of the traders at T3 Trading had $53,607 in trading profits. The traders' share was $37,525 (70%), and T3 Trading's share was $16,082 (30%). It is possible that 799 out of 800 traders received nothing, and one trader received $37,525. It is possible that 798 out of 800 traders received nothing, and two traders received $18,762.50 each (the equivalent of a $9.38 per hour full-time job). It is possible that the top one percent of the 800 traders received $4,690.62 each, and the remaining 792 traders received nothing. No wonder most traders resign in a short period of time.
The T3 Trading website reveals why revenues from the paid training products are not on the T3 Trading Group Annual Report: "T3 Live and T3 Trading Group, LLC are separate, but affiliated companies through common ownership." The T3 Live website advertises two courses that cost $1,997 each. The Virtual Trading Floor costs $200 a month. T3 Live has many paid products. I never purchased any T3 Live training products. My manager's free training classes were vague. My manager's free training materials were skimpy. About two months after I resigned from T3 Trading, T3 Live sent me an email that offered me a yearly subscription to the Virtual Trading Floor for $999.50. I was also offered a package of one course (I had three choices) and one year of private mentoring for $1,199.
There may be proprietary trading firms that offer its traders an exciting and lucrative career. My description of T3 Trading is meant to help people avoid a situation where the fees the traders pay to the company are more important than the profit the traders make. I worked at T3 Trading for only two months, and each of my co-workers traded five times as many shares as I did. One day, I plan on reading One Good Trade again, and I plan on watching SMB Capital on Wall Street Warriors again. Reading the book and watching the DVD will be more interesting to me now that I have experience as a proprietary trader.
I have never read such dross in my life. Self-glorification, narcissism, fluff, delusional ideals, and unethical statements can describe this book. It is so unbelievably awful, the fact that this book is popular can only be explained in two ways, the readers are naïve or have no education about finance and markets (which is ok, everyone starts somewhere) and/or looking to get rich quick. Let's dissect the book to some lines I picked out that I was flabbergasted about.
Check out page 18. The author and his partner rip apart a recent college grad and it's now published in his book, not only that he mentions how they will make so much money off the kid. Wow are you kidding? You paint a nice façade Bella.
Page 41. The author says traders shouldn't work hard. Hah that is great, your right why bother trying to develop yourself and further your learning? And your athlete metaphor doesn't work because and athlete won't play w/o a multi-million contract
Page 49. The author decided to spare the reader the specifics of what is relevant information when it comes to day trading stock. Explain to me again, why are you writing a book?
Page 143. The author says he can "sense by the PENNY where a stock should be trading 98% of the trading day." No he cannot, this is just asinine, if you are rational and have a brain than you shouldn't spend more than 6 seconds analyzing that quote.
Page 148. Finally 148 pages in the first intelligent character emerged, CDT. This woman apparently was very smart, hence why she left after one month or two. She said a job to good to pass up came by. This means for the very short time she was at the authors firm realized that buying in front of size in the depth of the book is ridiculous and was applying to different areas of employment. But of course the author spun it to suggest she didn't believe, hah yea who could believe the moronic idea of buying thousands of shares on the premise that you think there is a buyer or seller.
Page 171. Bella say's "We will figure it out." Mind you, risk is being put into the market and they are just going to figure it out. This was said about trading a stock.
Page 172. The author admits to not even knowing what IRR (Internal Rate of Return) means. I almost threw the book into the trash at this point.
Page 185-186. The author writes that black boxes don't have really any effect just makes trading a bit more difficult. Then says laughable things like more black boxes fail than traders (source?). And programmers don't know how to trade, your right Bella I'm sure a person with a PhD in computer science couldn't comprehend buying in front of size, actually I don't think he could because its so idiotic. Trust me if Bella had the capital and the possibility to create a phenomenal Algo trading system, he would.
Page 194. The author laughs about how if you buy your traders food or beer you earn their loyalty. Also scattered through the book he nearly brags that pizza is bought every Friday. The funny this is there are thousands of firms that fully cater lunch and breakfast daily for their employees. Some even offer stipends for dinner if you need to stay late. Oh wait traders are not encouraged to work long hours. The prop world is a joke and the traders barely make a living that's why they love anything free.
Page. 206. The author says you can identify HFT trades and maintains that he can do exactly that. He also suggests some strategies that will phase out and be eliminated. This is just his convoluted mind thinking he knows it all and is correct. You will never EVER know who is on the other side. You may see some weird stuff happen in the book but that maybe be thousands of different HFT algos playing around.
Page 271. The author says that loses by traders are offset by profits of others. If the losses are greater profits then the firm pays out expenses from reserves. Turn your attention to [...]. Now I am not insinuating that the authors firm uses the profits to pay for expensive and may run into shortfalls, but with the recent trend of prop firms closing down or converting to B/D I'd be weary.
Another thing I'd be weary of are the rampant probabilities used in this book. I would love a source to the empirical research done to show these strategies work in the way they claim.
Go to the website look how they sell products that reach prices of $6,000. You can't even put those skills on your resume. Being a day trader you are useless with no transferable skill. Do you want to waste your life sitting looking at level 2? Seriously? Don't fall for the hype in this book. Notice how the book always talks about the NASDAQ bubble and the other great days. All the glory is about how it used to be.
Bella was quoted saying "Discretionary traders are losing" when talking about HFT. Yet in the book he says they won't affect day trading just make it slightly more difficult.
Jim Rogers said it best; he never met a rich technical analyst, then corrected himself and said, yes, he did, the ones selling their service.
Bella's whole ideology of reading tape is dying as well. Big orders are being converted to hundreds of smaller ones because you cannot drop a block order now-a-days on the exchange, only a moron would, or broker that doesn't care about his clients. That means these big orders blend with the million other 100-1000 share trades that fire off every second with the HFT. Those large orders are moved to different conduits such as dark pools and cross networks.
It's really sickening this book, the author tries to paint a picture that the prop world is this place that you dream to get to because it's so great, in reality it is breaking down. Sure there will be one or two but so you want to be in such a brain drain part of the industry? Discretionary trading is an embarrassing profession. Think I'm crazy? Go try it out and let me know if you are still doing it after a few months, even the author says that most fail, what he doesn't tell you is he still profits handsomely whether you do or not. And mentioned in the book the traders pay-out was complicated, well it isn't, its' pure robbery. But that is a whole another discussion of it's own.
So if you want a book about a bunch of day trader fluff and useless information, then spend the ridiculous price for this book, or message me because I'll give you mine. There is truly just nothing here.
There is some good advice in this book but too many of the macho claims are off the charts. One trader has supposedly made a profit every single day for the past 2 years..and he is not their best trader. How about expanding a bit on how this was accomplished? Some detailed examples of actual trades?
In the beginning of the book we are lectured on trading "stocks in play", one or two every day that are active and volatile. Ok.
Near the end of the book, we learn about another SMB trader who can carry 30 positions at one time. Apparently, they change styles as the market changes. Sounds easy. Anything specific we should be looking for? If I don't know which style I am trading at the moment, what good is this book to me? Guess I have to subscribe to the website.