Listening and Trusting Other Traders on a Prop Floor

08/04/2010 12:01 am EST


Michael Bellafiore

Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading

As the co-founder of a proprietary trading firm, I constantly hear fellow traders around me call out things they are watching. Let’s walk through logically why it is so important as traders to develop the skill to gather trading ideas with your ears and then trust your teammates.

I know this sounds funny, but your ears are an important skill to develop. Just like your ability to read charts, read the tape, or discover patterns based on fundamentals. I can tell by the inflection in Spencer’s voice (my trading partner for the past so many years) how good the stock he is trading is. “Gman,” another trader at our firm, cranked up the futures pit feed the other day because, “It helps me tell if the breaks are real.” One of our new traders chirped a few weeks ago, “Watch GLD, Bella, I just got short.” I got short. One of my better trades this year was a call out in Toyota Motor (TM) by a brand spanking new trader. There is money to be made by hearing and then trusting.

Now here is what happens to those with underdeveloped hearing and trusting skills. You hear valuable trading information. You place a trade. It doesn’t work. You get pissed. The next time, you don’t make the trade. This does not make sense. Trading is a game of percentages. Of course, sometimes when another firm trader, or trading teammate, shares information, this will lead to a losing trade. Your job as a trader is to make one good trade, then another, and then another. The results of any single trade do not necessarily indicate that you made a poor decision.

Your month is based upon how much money you make minus how much you have lost. For active traders, the more trades we make where our risk/reward is favorable, the more money we will make. Trading opportunities are our oxygen. And there are only so many we can find by ourselves. We need help. Being a part of the right trading team can ensure the most trading opportunities. Then we need to trust our teammates.

It is not a one-day process to develop these skills of hearing and trusting. You are not going to go in next Monday and say “I am going to listen to ‘Iceman’ or ‘Lil Mike’ from now on and start making more money.” (Can you tell we like nicknames for our traders?) You must learn what audio you can use to make more money based on how you trade. For example, there are trades Spencer squawks that are not right for me. I can just tell by how he is talking about the stock. But that does not mean I do not need his audio. It means I must use this Spencer audio to my advantage and develop the skills of hearing and trusting.

When the markets are more difficult—as they have been of late—desks get quieter. One successful prop firm owner made this comment about another prop desk he had visited this month: “It is as quiet as a church.” No one wants to belt out incorrect info. A few weeks ago, I declaratively announced the market has just broken to the downside and I was focusing on only shorting. As if my comments cued the market, the market reversed and finished near the high. But then again, I also announced recently the strength in (AMZN) as it then bounced ten-plus points, and the strength of Citrix Systems (CTXS) as it finished at its high. You will sometimes be wrong with your callouts (though my recent intraday breakdown call was so bad I joked I was firing myself!), but let your teammates decide what to do with that information. But as a trader, learn who you can trust, what information will add value to your trading, and add trading opportunities to your P and L.

One more thing: If your goal is to become the best trader you can be, then hearing and trusting can add valuable trading opportunities for you. But if you do not have a system for hearing, trusting, and trading, then are you as good a trader as you can be?

Final tip: If you have fellow traders around you, share actionable trading opportunities and not opinions. For example, “BIDU is at an important long-term resistance level of 76.50. I am short,” rather than “I love BIDU.”

By Mike Bellafiore, author, One Good Trade
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