Sage Wisdom for Young Traders

02/17/2012 9:30 am EST


Michael Bellafiore

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

Aspiring traders who start out young can take steps to survive the difficult learning curve and pave the way for a career in the markets, explains trader and educator Mike Bellafiore.

I’m talking with Michael Bellafiore today, and Michael, I understand that you’ve developed a college training program. Tell me about it.

OK, thanks Karen. What we see is a lot of people who are young and very ambitious want to get into trading and perhaps land a spot on a prop desk.

Well, there’s a very real learning curve, and today, we think the learning curve is probably close to 18 months, so a young, ambitious person starts trading, but they’ll have this period where they’re not going to do as well as they can.

What we’re doing is reaching out to investment clubs and saying that we have training that perhaps you ought to take a look at so that you get a head start when you graduate.

Start building skill while you’re in college, just like you are in other fields. Start learning how to make that bullish flag pattern play, or that consolidation play, and start to learn how to actually become profitable in college so that you can hit the ground running.

If that’s the case, why should they go with proprietary trading desks because that’s coming under a lot of criticism with the recent implosion of some companies?

Actually I was at Bentley University recently and somebody came up to me after our discussion and asked the same question.

Look, people have to make their own decisions about where they want to work. A proprietary trading firm is a place where you are able to grow as a trader. You get proprietary tools; you’re around people that are making money; you’re around people that have some wisdom in trading, but each person has to decide for themselves how much value they’re getting from a proprietary trading firm.

But maybe they don’t decide that. Maybe they decide, I’ve learned from SMB Capital and now I’m going to go work at Goldman Sachs—God forbid—or somewhere else; that’s fine.

So, Michael, what makes a great trader?

Well, I actually have this recipe for the things that go into making a good trader, and actually, only one of them is their play book.

I think that the main knowledge, learning everything you need to learn about this sport called trading. Intrinsic motivation; you have to do the work when no one else is looking. Purposeful practice…

What does that mean?

It means, let’s say you learn a particular set-up. Let’s say you learn a breakout trade and you come to a fine event like The Traders Expo and somebody’s an expert in breakout trades and you sit here and you learn it.

Well, on Monday, if you go and trade it, you’re not really going to make money on that because you haven’t developed the skill that the presenter had to actually be able to trade the nuance, the subsets of those particular plays.

See related: The Ideal Set-ups for New Traders

So, for us, if you make a trade like a breakout trade live, that’s one touch to it. But we can turn that into ten by journaling about it, by talking to other traders about it, by thinking about your trading, by watching film of that trade, by watching film in a group session, by getting on a simulator and trading that same set-up over again, by writing it in your playbook and turning that one trade into ten.

Is that the same thing that I would do if I wanted to improve my trading performance?

Absolutely. And trading is about elite performance.

One of the people that’s influenced our work who I know you know very well is Dr. Steenbarger, and he writes about trading as an act of becoming an elite performer, and that is so true.

You actually have to be able to get to the point where you spend as much time as possible at your very best if you want to be a good trader, and the market puts this big mirror up to your deficiency, so if you’re inpatient, the market puts a big mirror up towards your impatience and takes money out of your account.

If you are somebody who doesn’t want to work that hard, there’s a big mirror that gets placed up on you, and the market grabs the money out of your bank account.

So yeah, you have to get to the point where you are performing at a very high level.

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