162: Mike Bellafiore – The Formula for How to Become a 7-Figure Day Trader

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Hey crew, what's up? Aaron Firefield here and I gotta say I'm actually genuinely very eager for you to hear this episode. Personally, I think you're gonna get a lot out of this one, but I have to tell you something first. Folks, if you are in Sydney or if you are near Sydney, please mark your calendar for Tuesday, the 5th of June. because I'm hosting another live podcast event and I have a very special guest lined up, John Moulton, though many know him better as Rambo.

Coming from Chicago, John, or rather Rambo, arrived in Australia during the 90s and he quickly earned a reputation as one of the biggest and baddest traders on the floor of the Sydney Futures Exchange. Some days he would equate for well over ten percent of the market volume. As I said, John's a very special guest, he's been abundantly successful as a trader, and he's done a great job of staying away from the public spotlight.

As far as I'm aware, the only thing you'll find about him online is when he featured in the nineties documentary Bulls and Bears. But I met John last year and he told me, almost word for word, trading has been very good to me and I would like to give back. So here we are. With regard to the actual event, prior to the live interview kicking off, I'm putting on bears and pizza for everyone, and this will also serve as an awesome opportunity to mingle with other traders.

Equally important, because this event wouldn't be possible without are the two sponsors who are getting behind this event. And by doing so, they're not only supporting chat with traders, but they're supporting the trading community. Those two companies are trading technologies and Prime IA. Show some love. Now for more info and to get your ticket, go to chatwithraders.com slash Rambo. Tickets are only$17. That's it.

Don't sleep on this. Get your ticket now because the event will sell out. Just as each one of these events has done in the past. If you didn't catch the link, it's chatwithraders.com slash Rambo. Go get your ticket. All right, moving along. Returning to the podcast for this episode is Mike Balafure. Mike, as you should know, is the co-founder of SB Capital, a New York City proprietary trading firm. He's also the author of The Playbook and One Good Trade.

And he was my guest way back on episode 22. That was in 2015. As the title suggests, the purpose of this episode is to break down how you can become a seven figure trader. Mike is well qualified to speak on the subject because he's mentored and led traders within his own firm. To reach this level of trading success. However, there are no quick fixes packed into this episode, but there is real value.

If you listen carefully, take notes, and intentionally act on some of Mike's suggestions, I know it will make a difference over time. All the links and resources mentioned can be found at chatwithraders.com/slash one six two. That's it. I won't say any more. Here is Mike Balafiore for episode 162.

I think a really cool theme for this episode would be uh something along the lines of the blueprint for becoming a seven figure day trader. I mean, how do you feel about that? Yeah, happy to talk about that. Okay, cool. Well let's uh let's waste no time and uh get into things. Well let's uh let's take it right back to basics, Mike. So I know for someone who's let's say just coming into trading today.

It can be very confusing about where to actually start. How do you go about it? Like where do you even begin to learn from? Where do you start out? Alright, so you know for us we think of uh development of a trader in um stages. And so the first stage is consistency and the second stage is sizing. And the third stage is breath expressing your edge in uh in different ways. And the fourth step

is sophistication in how you express your ideas. And so I always find from my inbox and people I talk to that people in the trading community often mess up at what stage they're in.

So a lot of people always want to work on sizing, right? And they start trading and they have a little bit of success. And now they want to just trade bigger. And then when they start trading bigger, they wonder w why they're not doing as well as they would want. And if you look at the results, a lot of times they're inconsistent. And it's because that they're focusing on the wrong stage of their development.

And so we had recently uh hired a trader who had a pretty good track record as a retail trader and uh we trained them up put them through our tra uh first two parts of our training program and policy edges a little bit and said to them, Hey, just do what you were doing as a retail trader and w we're sort of not going to get in the way. And let's let's work on sizing.

from your lab results. And the trader was not doing very well. And we had to take a step back and say the trader's not consistent. And the trader's run as a retail trader Uh while uh it was okay, it wasn't really long enough for us to really conclude that this was a consistent trader. And so we took a step back and we focused on consistency, all the things that go into consistency. Coming up with the daily process that sh you're gonna go through.

Understanding the setups that you trade best and making sure that you're trading them as much as you ought to be. Understanding the trade-ups that you don't trade best and getting rid of them. And so there's a lot that goes into that, right? So

uh uh do you have a r a a routine that you ought to go through each day? Have you written that out? Do you understand what the best routine is for you? All the things that go into that. Do you understand what you trade best? Have you Tagged all of your trades that you made and then put them into a machine um and put them into what we use um on our desk, uh which a lot of people call a trader view.

and put them into uh a way for you to measure your results and then have you taking a look at those results. Um and then after you've measured and understand what you actually trade best um are you actually are you actually doing that? And so

And and and the first step before that, of course, is getting trained pretty well. I I got actually asked a question about that, um, which I wrote a post about uh the other day and you do want to go through you wanna have a really solid foundation and It's you know, for us that means going through

S and B foundation. That means then going into trader development and that means then going uh into team trading. Those are three parts of our training program that encompass your first year um at our firm.

So what goes into that foundation, like the very first step, because you know, not everyone is going to be in a position where they can go into a firm. Some of these people uh who are listening to this are going to be trying to work this out on their own, especially in the very beginning, like when you decide that you know, I I'd like to give this trading thing a shot. Uh you you may not even know uh about prop firms. Uh so what sort of things would you be wanting to

uh like fill your head with because there's a lot of content, there's a lot of resources online, you know, some of it's really great, some of it's maybe not so great. What are the things which you want to focus on? So for us there there are certain principles that go into a really sound solid foundation. So I wrote a a little bit about that in one good trade, wrote a little bit of that in the playbook.

But You know, if you go to the gym, actually have a trainer and I I will I will say to you what my trader is always saying to me, which is it all starts with a really solid core. And so every exercise we do, even if we're doing like lap pull downs, he's always like, Make sure you're focusing on your core being solid. Um and so if you're trading and you don't have a really solid foundation, a really solid core, uh you're not getting good results. You're not getting good reps. So

a a good foundation for a particular trade, one good trade, uh would be, you know, are you thinking through the trade properly? Are you controlling your risk? Um, is it a good stock to be in? Are the technical is aligning? Is there a news catalyst behind it? Is there a thesis overall behind it? Um

And for, you know, the new trader, it really is about developing skills. This is a skill game. So you need to learn technical analysis. You need to learn what news catalysts move stocks. You need to learn the types of stocks you ought to be trading given your account. You need to be understanding what your risk tolerance can be on an intraday level. You need to have a decent platform that can get you in and out of stocks the right way. You want to be

doing being connected to to people who are giving you ideas. And for us, what's interesting is that when we first started S and B in 2005, the way that we brought traders in w was very different than the way we bring traders in today. And so for us, in our training is revamped every year. And then just even last year

For the second part of our training program, trader development, we implemented a whole new section on automated trading. And so when guys are coming in today, they're not just coming in with a career path of being a discretionary trader. But they're coming in with uh an option to be a discretionary trader.

Or an automated trader or what we call a hybrid trader. And so in trader development I sat down with our head quant in New York and Dr. Steam Barger and our floor manager and my partner Steve Spencer and we put together a a new training program on teaching people how to start as an automated trader, how to back test, how to forward test, how to come up with ideas

And um while they're working on the discretionary trading skills to also be working on their development as an automated trader. Okay. Who's your head quant? Would that happen to be? Morgan Slade? So Morgan runs uh quantitative trading uh for cloud quant um which which would be for the entire firm. And then uh he sits in Chicago and then in New York City we have a head quant who helps All of the experienced guys here and all of the newer guys here.

uh for um there's really three parts to technology here. There's filtering. So how do you how do you build scripts that will alert you to your best setups? There are scripts. How do you just get into a particular trade that the machine gets you into and then you trade out of with discretion? And then thirdly, being able to build automated models. And so uh we have somebody who and then and we have somebody who helps people with that and then trains the newer guys who are who are coming in.

Now, as we're still speaking about, you know, this very beginning phase uh of a trader's development, in your own opinion Do you believe there are certain asset classes which are best suited for new traders?

Well, I I think that It it it really depends on whether or not you're trading as a self directed trader, whether or not Uh you're trading at a prop firm, whether or not you're trading at an at an institution. I certainly believe that there's a best asset class for you. And so as a fun as a fun experiment while I was uh putting together a presentation um for a chat that I did recently in in New York.

uh I came up with something we call the the million dollar trader trading formula. And I I as for fun came up with the variables that people ought to be thinking about for can they become or how how do they become you know somebody who can make a million dollars in a year net. And you know, the first part to that to me was having a growth mindset. And then having a passion for trading and then having a really solid training foundation and then experimenting with different types of setups.

And after you develop after you experiment with different types of setups to start to gravitate towards a niche. And to show that you have trading edge in that particular nib. And to work on getting better training to come better at that particular niche plus Really trading your A plus setups bigger plus having talent. Plus using technology. to play more offense in markets, plus being patient with how long it's gonna take for you to survive a learning curve. Um or

to become good enough to to to make a million bucks net in a year. Um, plus perseverance. And and all of those things together i is my fun way of coming up with a formula for a million dollar a year trader. And so You know, inside of that, we touched upon niche. And one of the things that we do at our firm is and we're an active equities trading firm. We we do trade other products, but a majority of what we do is active equities trading. And

Uh what's interesting is that the the larger producers at our firm, they all trade differently. They may all trade Um they they certainly all come from the same training program. They're all hired the same way.

But they we expose people to different ways that active traders make money, whether that's trading low floats, um, whether that's trading large caps, whether that's trading high beta, whether that's scalping, whether that's trading as a technical trader, whether that's international ARB, whether that's uh M and A work.

Whether that's only shorting, whether that's only getting long, whether that's being a h a hybrid trader, whether that's being an inefficiency trader. There's there's so many different ways to to make money as a trader. And so There certainly is a a best way for you and there certainly needs to be you discovering what your niche is.

uh to find out how good you're gonna be. And so people always ask me the next logical question, which is how do you find what your niche is gonna be? I do think you have to experiment. And I do think that people oftentimes will go to a resource online and

take that resource online, not do well with that resource, that learning, and then conclude that I don't need to learn anything. I just have to learn everything myself. When maybe the conclusion is that resource wasn't best for my talents and for the way that I think. You really do have to expose yourself to lots of different ways to trade. And those have to be ways with edge. Um and then and so we do that. So here are the setups that we know guys make a lot of money as active intraday traders.

Now go try them. go measure your results on them. Now let's talk about how you can trade them better. You know, that there's there's there's not necessarily and and that's gonna depend on what kind of a firm you're at. So so there's definitely a best way for you, I and I give you in a good example You know, uh when I first started trading, we did a lot of scalping. We have a lot of guys who come through here right now who don't really have the

They don't have the skills to succeed today as a as a scalper. So that doesn't that's fine. Then then they can gravitate towards a a different type of of trading. And so You know, th if you are a retail trader, um there's gonna be that experiment and and learning curve. If you're a prop trader, there's gonna be that learning and e and and and uh experimental phase and down the line.

Can we just go back and pick up on I think it was the first part of that formula you described. Uh you mentioned about having a growth mindset. Can you go into that a little more? What does a growth mindset mean? What's that referring to? So there's a really great book that we recommend traders read before they actually show up. uh at our firm and it was written by Carol Dweck who is uh a professor and she wrote this book uh called Mindset and

A really, really great book. And and the the book essentially The hypothesis is that if you come into I'll apply it to trading, if you come into trading and you think that Your talent and your talent alone is going to dictate how you do as a trader. That's called a fixed mindset. If you come into trading and think, well How I'm doing right now is how I'm doing right now, but I can be better tomorrow.

And if I do A B C then I can be a lot better, then that's a growth mindset. And we found at our firm that the traders who have a growth mindset become Very, very successful traders. And a great example of that is at the end of the year, this year, uh, we ask our traders to come up with their yearly goals. And in 2016, one of our traders

who I'm gonna talk about their yearly goals in two thousand and eighteen for uh this particular trader earned a green shirt. And at our firm, if you net a million dollars in trading profits for a year, you get a green shirt. It's a it's a it's a big honor to be able to hit this hit this level. And in two thousand and seventeen this trader earned a black shirt. And a black shirt is when a trader nets two million dollars

uh plus in trading profits for the year. And so a trader was very successful in two thousand and sixteen and got even better in two thousand and seventeen. And when Uh he sat down to come up with his yearly goals for 2017. He said, Bigger picture, I'm also thinking about making the incremental steps to be a ten million dollar a year trader. That's what he wants to be. And so he's not settling for being a black shirt trader. He is

starting to think about the things that he needs to do and starting to do the work that he needs to do to hit that next level in his development. That's somebody who has a growth mindset.

Do you find that most people in trading naturally have what you would call a a growth mindset? No. Absolutely not. Really? Um Yeah. Um I I definitely think uh uh there are a a lot of traders that that have a growth mindset, but no, I I don't think uh everyone has a growth mindset. Um I I also think while it's preferable that people Uh have a growth mindset that um

Uh people there are traders that are so talented that the fact that they don't have a growth mindset also doesn't stop them. Um but it's but it's highly preferable. It works in your favor. Very much so. Uh what would you say are some of the challenges that traders are going to come up against, uh, which they may not be expecting?

Obviously anyone who's come into trade and been knocking about for a few months by that point should realise that, you know, th there's gonna be periods where they lose money and it's it's very difficult in that but In your situation and and having the experience that you do uh running the firm You've seen the paths of a lot of traders uh develop. What are some of the challenges which they may come up against, uh, which uh that often unexpecting?

Well I think the recent change in volatility is a great example of that, right? So Five years uh into the end of twenty seventeen, we saw a market that had historically low volatility. You know, VIX was under ten. And when we had that period of historically low volatility, there are a lot of very talented um long term producers who really struggled. And they really struggled because when the the large caps weren't moving

uh with the volatility that they needed for their strategies to work, they very much underperformed. And so In twenty seventeen we had a a really great year. We we we did we did very well. We were very, very happy with our progress. Um I would term it as a as a year of outperformance. And Then we walked into some months where volatility picked up and and I wrote about this uh in a recent blog post. And when volatility picks up generally

Traders ought to make a lot more money. There's more opportunity. movement breeds a more opportunity which is best for traders and When I look back at uh end of month, like for a particular month like February, we ended up putting together a pretty solid PL month for ourselves. But we m we made money in a way that um was a little bit uh unsustaining. And we didn't make and take advantage of the overall market volatility as well as we should have. And so the challenge is

going from a low volatility market to a high volatility market. And in our case uh going from trading uh unique sets of stocks to trading the overall market, to to trading spy and trading Qs and trading uh VXX and trading U V XY. Um so trading the volatility products trading the uh the the the overall market products, trading more large cap stocks related to the market. and and I wrote this, I thought we underperformed relative to the opportunity set. We squeaked it out

in terms of P and L success, but I didn't like the way that we didn't take advantage of enough of the opportunity. So we've been talking about that to our guys. We've been talking about Hey, here are some of the tools that you oughta be looking at. And Doctor Steenbarger has been very helpful. to our guys in uh reminding them Um and

putting in front of them ideas for tools that work best when you're trading the overall market. So you know, here are here are four or five tools that you really need to be looking at to trade the overall market and getting into that mindset to move away from some of those stocks. that had been s had been trading to to new ones. and uh being able to outperform this opportunity set.

Um that's challenging. It's it's it's a very difficult thing to spend five, six years in a low volatility market and develops trading strategies to outperform in that low volatility market and then be told Oh, you gotta you gotta go trade all these things that you've been staying away from for six years because they weren't working. And and you're gonna have to dive in and you're gonna have to dive in with size. That's a hard thing to do.

Would you say that The reason that you underperformed, you know, you said you still did a had a good month, but it wasn't as good as it could have been, and you felt as though uh the firm as a whole uh perhaps under def underperformed in February. That would be expected though, right? Like because as you've described, there was five or so years where volatility was very low and then it was almost like overnight it suddenly just changed. So Naturally that's gonna catch a lot of people off guard.

Well, I I uh I think that's okay for a a little bit of time. But, you know, you asked what the challenges are for a trader and I'm sorry, but you gotta be able to adapt. You gotta be able to shift gears and, you know All of us were sitting around saying, Hey, we gotta be trading the overall market and you gotta be able to perform. This is a performance sport. And uh Our guys here, and and I'm sure a lot of guys, you know, out there understand that

There's there are no excuses. When you underperform, you say it. When you underperform you run through the reasons why you did and you you take the steps so you don't going forward. And you certainly don't want to sit back and and say, Oh, it was No, it was hard, you're right. But you gotta get over that and start getting better and adapting real fast. Um or else you're gonna you're gonna lose that opportunity. Yeah.

Uh just going back to speaking about a growth mindset, I think this is a really cool topic to go into. So I just want to ask one more question around that. I would say one more thing, which is and and I do think I don't mean to cut you off, Aaron, but I I would say one more thing, which is It it's not just that the volatility is uh I i there's there's a very real difference between the stocks that you're trading in a low volatility market and how they trade.

and spy, cues, UVXY, VIX, and how those trade even in a high volatility market. And Y y you need to embrace that. They're they're not going to trade as fluidly

um or as directionally as some of the other stocks that you were outperforming in a low volatility market. Um and so there's there are real edge issues that you need to embrace on top of looking at the right indicators, on top of having the mindset to attack different products because the volatility has spiked, that Um that is very important. Are you ready to get serious about trading? Then join Tasty Trade, Investopedia's best platform for options trading in 2026.

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So as we're talking about the growth mindset, and this is something which uh you say, I think you even sign your emails off with it, you can be better tomorrow than you are today. And that's ties in with the growth mindset. I mean, how How can traders actually put that into practice? You know, like what what is that something they can be doing today which is going to help them tomorrow? Like how do you think about that and actually apply that?

Every day. Like it's it sounds good, um, but how do you actually put that into practice? Like, what what are some actionable steps to make sure that Whatever you're doing today is gonna help you tomorrow and then it, you know, rinse and repeat. So I thought we did pretty well in two thousand and sixteen and as we were preparing for two thousand and seventeen, I remember talking with Doctor Steenbarger, who we're really lucky uh to be able to work with. He's very instrumental in

a lot of the things that we do, uh, here in New York. And so uh I was talking with Dr. Steinbarger about all right, we did pretty well in 2016, but how are we gonna do better in 2017? And uh he came up with an idea to Start to ask the top traders. To send a daily report card to him and to me, and for us to provide mentoring and coaching. So Um he would provide the mentoring and um and and and also coaching and and I would provide a lot of the coaching as well. I would stick to

the ins and outs of the stocks that these guys were writing about and he would stick to um performance um overall and and the overall market trading that some guys are doing. And so we developed Um so I I took that idea and ran with it and we developed an exercise called the Daily Report Card. And it was, hands down, the MVP of two thousand and seventeen for our firm.

The MVP of two thousand and seventeen was the daily report card. And um I spoke about this at a charity event, uh Traders for a Cause. and uh it created uh an an an outline for for how we do that do this and and and at that charity event I I said, you know, I challenged the guys in the room. I said, what if at the end of each trading session you posted a trading report card And not just your trading P and L. And what if this became a prominent best practice for the online trading community?

You know, what if the report card focused on one monthly goal? Perhaps sizing or consistency, perhaps expanding your playbook, perhaps limiting losses. The report card would be your daily progress report on that goal. And you'd give yourself a grade.

for the trading session on that goal. And so you pick one goal You work on it intensively. And that's key. You work intensively on this goal. You develop solutions to achieve this goal. So you don't just say, Ah, I messed up in sizing today, I should have been bigger. Well, how are you going to get bigger the next time? What are your solutions to get bigger the next time? And you complete a report guard at the end of each trading session on the progress

for that one goal. So for us, the MVP of two thousand and seventeen was the daily report card. And for guys who are thinking about growing as a trader, I'd recommend that they do that exercise to do that daily rapport card. And and I know you're you're good friends with Austin. Who is a a Sydney based hedge fund trader and he posts his daily report guard online every day.

And uh I think he's a tremendous role model. He's a terrific and very successful trader. Um, posting his PL online, you can you can see how good he is. And uh He's a great role model for everyone out there as to how to grow as a trader. Yeah, without a doubt. I I often read his uh daily report cards as well. It's quite good. I mean the way he sets them out and structures his card by sort of listing the stocks that he's traded that day or holding positions in

uh and then kind of writing a short blurb about each, is that the way that you'd suggest to do it? Or does everyone kinda need to find their own way of uh sort of putting together a daily report card? I I think I like your idea a lot, which is finding your own way is is is always best. And in fact, uh it might be best for people not to write down a daily parkour, but maybe just verbalize it uh to a trading buddy. So there's individualizing these exercises is always best. Um

And remember he's a very advanced trader. So his report card is gonna be at a much higher level than a new trader. He's obviously a seven figure trader. Um, so you wanna think about that too when you're Thinking about putting your your your report guard together. A newer guy, I think you wanna you wanna think about a a general thing for a newer guy would be to develop a daily process. You know, what are all the things you're gonna do during the day to get better? And then did you complete them?

Did you go to the gym? Did you eat well? Did you wake up on time? Did you go to bed at the right time? Did you do your playbook trade? Did you do your book of charts? You do your charts after the close? Did you um talk to your buddies about trading? Did you trade the right amount of stocks during the day? Did you prepare for the open? All of those things. Spend some time in yourself to to feel good about yourself. Coming up with the daily process is generally a good thing for the newer guys.

Do you think it's important to share your daily report card with someone? I know Austin posts his on Twitter every day. Uh, even if it's not on Twitter, do you think it's at least important to share it with uh somebody else or a group of people or, you know,'cause it's very different w if you do that compared to just kinda writing it for yourself and sticking it in the drawer or you know. Um how do you feel about that?

So one of the things that uh we did pretty well in two thousand and eighteen is uh we got better at team trading. And so team trading to us is And I was I was reading uh one of your posts the other day and and you talked about uh Blair Hull and and he stated Uh he he has a philosophy that all great things happen in our world happen with teams, not with individuals. And uh we agree with that here, which is

you're gonna be a better trader when you're working in a team with other people around you. And I think one of the things you did well in 2018 was was team trading. And so our senior trader on a desk He will send his daily report card to myself and Dr. Steenbarger and then all of the people on his team. And I will respond with my thoughts on that person's daily report card and Dr. Steenbarger will respond as well. And it gives the junior traders the opportunity to

uh see what the senior trader is working on and see the solutions that the s senior trader is coming up with to make progress. And Uh what's what's really great about that uh as well is that it holds a senior trader accountable. The senior trader knows he can't mess up because the junior guys are gonna see it and it it helps him not mess up as much.

Because he knows he's gotta write a daily report card at the end the end of the day and talk about his day. And so, you know, if the senior trader is working on, for instance, not losing too much money when so a a lot of guys will talk about what's called the front side of a trade. So uh there's a stock and it's going up too much. and they think it's gonna turn around and and pull in. And they'll short the stock on what's called the front side, meaning it's still going up.

and they're gonna short into strength. And so You know, it's a a pretty common thing for a very large trader that that that we in fact, you know, one of our best traders last year we worked on this pretty hard is that um he was losing too much money on the front side.

He was gonna make all the money back eventually, but he was drawn down fifty thousand to make two hundred thousand. And what we wanted to do and depended on the play, those numbers would vary, but we wanted to do is have him less lose less on the front side and then be able to have more risk on the backside of the trade when the stock is really showing the weakness, when the momentum is actually starting to go down, uh, when the momentum is with you.

to be able to make more money. And so if I'm a senior trader and I know that I've committed to a risk rule for how much I can lose in the front side, say ten thousand dollars. I can't lose more than ten thousand dollars on the front side. and I've written that in my daily report card and this is important to my progress as a senior trader.

And then on a day I've lost thirty thousand dollars, well it holds you accountable. You know, why didn't you follow your risk rule? Now what are the things you need to do to make sure you don't violate your risk rule the next day? And those types of things really add to your P and L.

Uh when when you're a trader and and when you're a big trader. You also mentioned uh grading your daily report card. Uh is that a big part of it as well? And and how do you actually think about grading the report card? It's a it it is a big thing. And so uh different traders do this differently. Some people give themselves an A, B, C, D, uh, E, or F. And uh another trader who is

working on only taking trades in their playbook. I think this is probably something common for developing traders. So the second book that I wrote was the playbook, and the thesis of the playbook is that uh traders need to develop a trading business and they ought to trade their trading business. And the trading business should be made up of stocks uh of of setups that uh they like the most. So an exercise we do on our desk is at the end of each day.

Our traders will archive a setup that made the most sense to them. The way that they archive it is in what we call playbook form. They write down the variables of the trade. So today, uh maybe they're really interested in the match.com opportunity. Facebook announces that they're gonna get into the uh dating space. What happened to the match? Tanked. We'll call that a breaking news trade. So let's archive after a day like today a breaking news trade.

What are all the variables that went into it? There was a news catalyst. Here's what the technicals looked like. Here's what the tape looked like. Here's what the intraday chart looked like. Here are the trades that I could make. And let's now take that and put that into our Overworld playbook. And then we'll have a series of these types of setups. That we'll put into our playbook and that's our business. We trade

Those trades. We don't trade other trades. We trade those trades that we put in our playbook. And so a trader in their daily report card will grade themselves on how many trades during the session that they took from their playbook. And the common thing is guys will shoot for uh eighty percent or better. up trades from their playback. We're not perfect as traders. You don't have to be perfect. But you should set a

a a a goal for what percentage of the trades you want to take. And so uh one of our guys will will grade what percentage of the trades he took which were in his playbook. Väng firar 70 år av resor som är svåra att släppa taget om. Och det gör vi med massor av erbjudanden som är omöjliga att motstå. Boka redan nu på wing.se. De bästa resorna försvinner först. Ving- semester. Inte vill hem från.

When you speak about a playbook, what what's the format of this and and like how are you archiving plays uh in a way that's easy to reference? Like is it a is it a physical book or is it kind of a folder on your desktop, like what does it look like? So at the end of each trading session, our guys are archiving a setup that made most the most sense to them. Those setups have variables. And guys go back and they decode And deconstruct

the variables of that setup that they really liked and they put them into uh this playbook. We call it the S and B playbook template form. And I wrote about this in the playbook, uh as I mentioned. But it it consists of generally what is the big picture for the given day uh overall. And let's let's let's make sure that we understand what that is. when we're talking about the setup. So in this case, in in our markets, and we got below uh a key spy technical level yesterday.

and we had been selling off and looking for uh a little bit of a of a bottom. So overall we're in a weaker, shorter term market. uh pulling into uh looking for that su bo support and still above the two hundred day moving average. So that's an example of the big picture. And then uh we look at overall what are the technical, long term technical What's the long term technical outlook of a particular stock? Is it at a fifty two week high and going higher?

Is it at a 52 week low and going lower? Is it in the middle of a range? Where's the next technical support and resistance level? And then we'll look at what's the intraday chart setup showing us. Is it um below the opening range? Is it above the opening range? Let's let's define that. We'll make sure that we understand the news catalyst in the particular setup. So what's the what's the news that's getting people interested to trade this on a given day? Uh we'll make notes uh what the tape

was telling us about this particular setup. Um we will talk about an overall trade strategy for how we attack this particular setup. and we'll talk about intuition. You know, what of what what were you feeling in the trade as to uh what direction it it oughta move in? And so That is and and guys as they get a little bit more experienced they will add some variables.

to that. They might take some variables out. Um and a lot of futures traders have ended up using this for their trading as well. So they might take out you know, a particular news catalyst for that, that that wouldn't work. Um, maybe they'd have to look at uh the big picture a little bit harder. And so but the idea, Aaron, overall is And you taught you touched upon this in your first question.

you know, w who are you as a trader? What is your trading business? What do you do best? And the way that you figure out how you do best is Part one, start building your playbook. Start understanding the setups that you can trade really well. Start archiving them. When you write them down, you're internalizing them in your trading brain. They're easier to make in real time.

It's easier to go and review your day because you can take a look at did you make trades inside or out of your playbook. You can tag those trades and measure how well you did because they've got names. This is a breaking news trade in match. Let me measure how I did on that. Oh, okay. I made five points. Good. Here was a breaking news trade I made uh the other day when Uh Citron came out with a hit piece. Okay, I made four points.

All right, good. I like this. I I do well in these breaking news trades. My my stats back me up. And I'll give you a really good anecdote about this from one of our guys who is gonna be our next seven figure trader. Every time he passes me, I tell him that. And I'm gonna keep telling him that until he actually becomes it. But I remember the his first period of success uh he asked to come talk to our floor manager and myself about a bump in capital.

And I knew the trade that he was gonna ask to get bumped up in. And I c I just personally am not a huge fan of this trade. And I was regr I was just like I didn't want to be in the meeting. I was like, is he really gonna ask for money on this trade? Like, this is just such a whoosh trade. Like, does he really wanna like

Does he really wanna like build his career around this trade? And it was an inefficiency trade. It it's it's uh anyway, and so I gotta admit, like before the meeting I was just you know not thinking this was gonna be a good idea and Trader walks in, plops his His his uh his notebook down, plops his uh computer down.

His laptop down on on our on our conference room and says, uh, here are the measured statistics of this trade for which I would like more capital. And his equity graph was like straight up. It's like it was straight up. It was like I kept looking at it, I'm like and and uh We s we looked at we looked at each other and said, Yeah, we'll we'll give you more capital for the idea. That's a great idea. And uh

And he's gone on to trade these types of setups bigger and bigger and better and better. And he in this trade could probably become a seven figure trader as it is. He's working on other things. But

He playbooked the trades, he measured the trades, he's got the data. It's undeniable. It was undeniable at the time that we ought to give him more capital. And so when you're sitting there at home you know, trading your money or or maybe trading some money s somebody else's money, um, and you're thinking about how do you how do you scale up?

Well, you should be able to prove it to yourself that you make money in certain setups and and and you do that first by starting with those playbook trades. Did I hear you correctly when you said uh something along the lines of he could potentially become, like very potentially become, a seven figure trading a seven figure trader based off this one particular playbook trade.

Yeah, I it's uh it's a type of trading There there probably would be um some subsets of these trades, but but this type of trading that that he was that he was that he's doing and he was doing, a hundred percent he can be a seven figure trader just in that niche of trading.

And all I do is uh every time he passes me I'm like, trade bigger. That's all I say to him. Trade bigger, you're gonna be the next seven figure trader. I think he's getting a little annoyed at me for saying that. But I'm gonna keep s I'm gonna keep saying it until he till he is. Right.

Yeah, that that's really interesting because obviously he was uh you know, very prepared when he came into this meeting and had all his stats and kinda let the the data speak for itself. As a trader becomes more developed, uh, I know this is a term which uh you've thrown around uh in the past is becoming a bionic trader. And you spoke about a little earlier about using uh technology to help you uh in various ways. You know, even as a discretionary trader, you can leverage technology.

Can you speak about uh an example of how a discretionary trader can leverage technology? So so our our firm, uh S and B our about five years ago uh in a joint venture um with the Kirschhner Trading Group. um started building out this New York office. And, you know, one of the things that really attracted to us, attracted us to this joint venture with with the Kirschhner Trading Group. And I know that you've talked to Andy Kirschhner and uh A

Another division of that is quantitative vision, which is run by Morgan Slade um at CloudQuant, was the technology that the firm was building. And so when uh our guys get good And they understand their edge, we want them to play more offense. We want to make sure that they're alerted to all of the setups that they really, really love. And so a filtering technology.

Helps traders spot and and receive signals for all of the setups that they really, really love. And so they are um during the middle of the day and and after the close writing code, simple code, to make sure that their filters are finding their favorite setups. And this is a a huge the value add to their trading and and a huge uh boost to their P and L overall because it's ensuring that they're in the setups that that they like the most. So they're

They're making sure they're they're armed with this information that's alerting them to their best setups. Um and then another thing that that our guys do and a step further is uh they may create a script. for a particular setup that automatically gets them into a position. So let's just say you really love breakout trades. That's one of your favorite trades.

And you're really looking for one particular stock to break out of a important consolidation, you can write a script and say, Get me long if it does.

And uh you can write a script that says anything that looks like this type of consolidation and it breaks out, get me long, and then I will trade out of it with discretion. And then certainly another thing that uh traders are doing more and more of particularly the newer traders who are coming in, is uh starting and saying, All right, I want this filter, I want this alert. to fire every time um a trade like this comes up.

But hey, let me take this let me back test that signal in of itself. So I'm getting these really great signals. What if I just really did get in every time and didn't overlay my description? What happens if I just got in, create some exit rules? How would that do? And

test an idea overall that I couldn't trade perhaps uh as a discretionary trader, but if the computer was just allowed to work, I could make some money. Um and so they're they're building I I I think almost all of the I wouldn't say all the guys, but a a very large majority of the experienced traders uh have uh built models or partnered with junior traders to build models that supplement their trading. And then there are just some guys that have really

moved away from discretionary trading and and focused on on building models. And and certainly newer guys have done that as well. In our last class that came in in September, there are two guys in our class who uh are doing very little discretionary trading and are almost exclusively working on uh building automated models. And so you know I think the big picture is As a trader in these days, um as a discretionary trader with edge, uh these days, you you you really

want to be armed uh with technology tools to help you make better decisions and to get into more opportunities that are your strength. Um and You know, it's it's not a bad thing also to be working with junior guys who are uh building models for you that are on your your PL line. So um and and I can tell you, and I mentioned this at the beginning, the training that we do for our new hires is

substantially different than it used to be. And and that teaching and that training of of automated trading is a large part of our second part of trader development. didn't used to exist uh th three even three years ago that that does now. And so that gives the person a career path of discretionary trader, it gives them the career path of hybrid trader, it gives them the career path of automated trader.

Now, as a trader is becoming more advanced and becoming consistent, uh, starting to put up some decent gains. As an example, let's say they've grown a a ten, fifteen thousand dollar account over a period of time to one hundred thousand What things need to change for them to take that hundred thousand dollar account and turn it to a million dollars?

What got them from fi ten or fifteen to a hundred, is that doing the same thing? Is that what's gonna get them to a million dollars? Or are there some Uh some things which actually need to fundamentally change. Yeah, in some cases uh nothing. Uh in in other cases not much. Um in in other cases uh some some some other stages that they they worked on. So we we have had some traders who went from making four thousand dollars a month consistently to

um making over a hundred thousand dollars a month consistently pretty much doing the same things um they were doing all along. They just did them bigger. They just uh made their trades with more size and they consistently push themselves outside their comfort zone while still being responsible to handle larger size. So Uh we like to think about guys understanding their edge and uh giving a certain amount of risk. for their trades inside their risk book and then

not really doing anything different after a period of success other than just us increasing their buying power and us increasing uh their their risk loss. The percentages of their uh intraday stops. are the same. So, you know, let's just say you had a thousand dollars of intraday risk and on your best trades you risked twenty percent of your intraday loss and you had a really wonderful period of success. And we wanted to bump you up? We might bump you up uh twenty percent the next month.

And your your risk loss is twelve hundred for the day and for your best trades you just Risk twenty percent, you do the math, figure out what you s and you just you keep progressing that way. You don't really do anything different. You're just trading your best setups and just moving the the doing the math to how much more uh r risk that's gonna be, but your percentages are really the same. And

You know, so so so it gets it's a little uncomfortable for guys to to trade a little bit bigger, but but they get used to it. And uh I I think people tend to go from a thousand dollars of risk to five thousand dollars of risk, and that's a really bad idea. Trying to bump yourself up too quickly will will will will bring a car crash and some trauma that will cause you to take some steps back. Bumping yourself up by pushing yourself outside your comfort zone

and uh responsibly doing it, maybe at a twenty percent larger clip is a good way to do it. It's a common way that our guys do it. Um so so a lot of the guys haven't done much. I I would say that, you know, there are also guys that have uh added breadth to their trading. So they've looked at where they've had success in the past. and applied that to uh different types of stocks. So they may have had success in one type of stock.

And they'll take their favorite trades from that one type of stock and they'll try and apply it to a a more scalable opportunity. And grow from there. They might also uh decide to s to start using options to supplement their trading as well. Um it's we've seen some really nice progression from our our top traders.

by not just expressing their ideas with stock, but also expressing their ideas with options. And so um that sophistication of how they express their ideas can also help them take uh steps and and progress. Yeah. I I'm pleased you brought that up actually because I remember you mentioned breadth at the beginning is one of the kind of the the stages or steps that you get to uh thinking about uh the breadth of your trading and yeah, obviously very important.

Um just one last question around this and then we'll we'll wrap things up here. But Getting to a seven figure trader, how much of it is a mindset factor? I know we spoke about having a gr growth mindset earlier and that probably ties into this, but Do you think that some people they want to make a million dollars? Like they can say that, but psychologically perhaps doubt their own ability, or it seems too far beyond the realm of possibility. If that's the case, how do you overcome that?

So I I've written about this in the past. I I call it small wins. And so you don't want to think about going from zero to a million dollars. You wanna think about going from zero to being able to make fifteen hundred dollars in a month. I I actually m would take a step back. When you first start trading, A very common step is you lose too much money and a real step in progress is to lose less. It's a real step in progress. And a real step in progress is to trade flat.

And a real step in progress is to make fifteen hundred dollars. And so, um, after you make fifteen hundred dollars you set the the next goal. Maybe I wanna make four thousand dollars in a month and and then maybe I wanna make ten thousand dollars in a month. And so You you wanna be thinking about what are the things you need to do to get to that next realistic step. uh in your development. And and it's it it it is a process. W we find on our desk that

until year three before uh traders are gonna make substantial PL. And uh Uh you wanna come into this game being realistic about your learning curve. You can make some money in year one and you can make good money in year two, but What we're seeing at our desk, guys have all these resources. They get to work with Dr. Steambarger, they get in the best technology in the prop space, both on the front end side and you know, you can't use our technology unless you traded our firm.

and on the automated side. And you get all the coaching and all the mentoring and plenty of capital to use um at the firm. And it's still and you have these experienced traders who you can learn from and watch them trade in real time and it still takes some time to get to to get good at it. And um and you get the f firm backing to make sure you can support yourself.

uh through those through those years. But it but it still takes some time. So I I don't think about I don't think about trying to go from you know, the w the one yard line to across the Uh, from from the twenty yard line to all the way across the field to the other teams goal line, I think about

How do I go from the twenty to the thirty? How do I get from the thirty to the forty? How do I get to the thirty and and just keep plugging away and catch your pe to put your head down and keep working and it's easy to get from the twenty yard line to the thirty yard line. It's really imp almost impossible to go from the twenty yard line to to scoring a touchdown. Um so that's what that's what our guys that's what our guys are doing. And you know that example that I used?

With uh one of our top traders who wants to be a$10 million a year trader. You know, he was a seven-figure trader uh two years ago. Before that, You know, he went from a zero to a four thousand. I remember pushing him when he was about a uh eight to ten thousand dollar uh a a month trader, I remember pushing him and challenging him to make thirty thousand dollars in a month. And

uh getting him to commit to that. And I remember him then and then doing that. Um and then I got to the point where he netted a million dollars and and it got to the point where he netted over two million and now he's pushing himself to to make even more, but he's he's taking those incremental steps. And to to be a ten million dollar a year trader, he knows he has to take these incremental steps. And so focus on those incremental steps that you need to take to get to that next level.

Yeah, that's brilliant advice, Mike. And I just want to say something to uh everyone who's listening to this right now. Like, I don't want you to just listen to this episode for entertainment purposes and be like, Oh, that's nice and sort of carry on as you were going. Like actually go over this a couple of times. take some notes because there's a lot of actionable uh

strategies and tactics that you can actually implement. And I know, you know, it will make a difference as it has done for the traders at Mike's firm. So Mike, I want to say thank you very much for coming on the podcast. uh again for a second time and uh giving up your time to share a lot of really uh valuable, helpful uh information. So thank you.

Well Aaron, I wanna say thank you to you too. I I started writing a bunch of blog posts um many, many years ago to share with the trading community'cause I I I felt like I I had a a unique voice that that I wanted to share and

I I certainly appreciate when other people are doing that as well and and you're one of those other people, obviously. You you've put together a a really a voluminous A voluminous library of learning for the trading community with really terrific uh guests that Uh new traders and developing traders can can sift through to come up with really good ideas. And and as you said, you know, you listen to these ideas and then implement them. They they they they will help you get better.

So um really appreciate the help that you're doing for the community and and the opportunity to talk with with you and and your community. Yeah, it means a lot. Thank you very much. And I should point out uh the the few names we spoke about. uh earlier on in this episode. Uh you can hear on previous episodes of Chat With Traders, uh, Brett Steinberger

uh Morgan Slade and Andy Kirschner. Uh all three of those guys have been on the podcast previously, so uh you'll find links to those episodes in the show notes. Uh Mike, if someone wants to find out more about yourself, uh read some of these blog posts you've mentioned, uh, where's the best place to go? If you want to read my blog post, you can go to smbu.com slash blog.

If you have a trading question, you certainly can shoot me an email, mbellafury at smbcap.com. Okay. And you're on Twitter as well. What's your handle? At Mike Bellafury. Cool. All right, Mike. We'll leave it there. Once again, really appreciate your time. Thanks very much. Thanks, Aaron. You've reached the end of this episode of Chat with Traders, but rest assured there are more episodes. We'd love it if you'd leave a-