The Trading Show Chicago is considered North America’s leading trading event where traders, quant investors and exchanges come together to explore new advances in trading strategy, quant models, and technology. The event consists of an exhibition, seminars, and a strategic conference. This year Mike discussed “Relative Value Strategies: Tapping New Opportunities Beyond Speed.” and SMB’s transition to building multi-product, multi-market discretionary quant traders with The PlayBook.

1. A Prop Firm's Transition to Building Multi-
Product Multi-Market Discretionary Quant
Traders with The PlayBook
Mike Bellafiore
Co- Founder, SMB Capital
Co-Founder, SMBU
Author, One Good Trade and The PlayBook

2. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a
number of products and services, both electronical (over the internet through smbtraining.com) and in
person. SMB TRAINING also offers web-based, interactive training courses on demand.
The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be
construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for
any investment decision you make, and such decisions will be based solely on your evaluation of your financial
circumstances, investment objectives, risk tolerance, and liquidity needs.
This material is being provided to you for educational purposes only. No information presented constitutes a
recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or
instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor
should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully
responsible for any investment decisions you make. Such decisions should be based solely on your evaluation
of your financial circumstances. Such decisions should be based solely on your evaluation of your financial
circumstances, investment objectives, risk tolerance and liquidity needs.
SMB Training and SMB Capital Management, LLC are separate but affiliated companies.
No relevant positions
Please note: Hypothetical computer simulated performance results are believed to be accurately presented.
However, they are not guaranteed as to accuracy or completeness and are subject to change without any
notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual
performance record, simulated results do not represent actual trading. Since, also, the trades have not
actually been executed; the results may have been under or over compensated for the impact, if any, of
certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are
also subject to the fact that they are designed with the benefit of hindsight. No representation is being made
that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and
trades carry risks.”

3. Goals
• Share my experience co-founding a prop firm
• Explain how SMB had to adapt and why
• Teach how discretionary traders are modeling
• Highlight our vision for the future of trading
• You can be better tomorrow than you are
today!

4. What We Do
• NYC Prop Desk
• Back discretionary traders
• Back algorithmic trading models
• Train and back new traders
• Teach new traders globally

5. SMB Begins
• One Really Bad Idea!
• Hey why don’t I just start a prop firm
• From my apartment and underfunded
• Singapore Presentation Admission
– Delusion
– Naïve
– Arrogant

6. I Asked My Best Friend- A Trader
• “Why would I want to do that?”

7. I Just Started
• Providing a solution
• Demand to be trained
• Insufficient trader training
• Willingness to teach and develop
• Turns out we were quite good at it!

8. Business Model/Career Path
• Consistently Profitable Active Trader
• Get Bigger
• One product, one market career path
• So 2006ish
• So wrong for today!
• Margin of error too small

9. Built our Firm to 60 Discretionary
Traders
• Taught and developed new traders from
scratch trading our capital
• Did the work others were not willing to do
• Very profitable years
• Developed a strong reputation in new trader
training space

10. A Little Branding Luck
• One Good Trade
• Wall Street Warriors
• SMBU Blog

11. One Good Trade
• “trading classic”
• “the bible of prop trading”
• Invited to build training
programs globally
• Hedge Funds, prop desks,
foreign brokerage houses

12. Wall Street Warriors Branding
• “Why would we want to do that?”, Spencer.
• There was no HD programming
• A constant and free infomercial of SMB

13. SMBU Blog Branding
• 80 nations visiting daily
• Sharing free stories and trading tips daily
• We had no idea the blog would be so popular
• The destination to learn how to trade

14. SMBU Born
• The Spinoff
• 60 percent of our business overseas
• Destination to learn how to trade US markets
–SMB Systems Training

15. The Perfect Storm
• Some of our better traders left
• Contraction in Prop Trading
• Government
• Regulation and fees increasing costs
• HFTs

16. HFTs Game Out Some Setups
• Micro scalping
• Momentum trading

17. HFTs Challenge
• The Friday e-mail
• Why do you guys even bother?
•You are a dinosaur!

18. SMB Adapted and Got Stronger!
• Swing trading
• Trades2Hold until Reason2Sell
• Developed a new PlayBook
• More upside
• Built trading models
• Encourage our traders to build auto strategies
• Here’s what more have to do in our game…….

19. Discretionary Traders
undervalued…If!
• Archive their best setups with detail
• Bionic
• Auto trading
• Multi-product
• Multi-market
• Constant Coaching
• Scalable Risk

20. Understanding their A+ setups
• Recent recruiting of Experienced Traders
• Over-reliance on their intuition
•A lack of methodology

21. Develop Your PlayBook

22. The PlayBook
• Archive your favorite setup after each close
• Template form
• From these trades choose your A+ setups
• Increase risk on A+ trades!
• Swing: (2-5 percent)
• Intraday: 30 percent of your intraday stop

23. The All-In Trade
• A+ A+ trades
• Predetermined detailed variables combining
• Risk their week/day in their favorite trade

24. The PlayBook Template
• Big Picture
• Fundamentals
• Technical Analysis
• Reading the Tape
• Intuition
• Trade Management
• Trade Strategy
• Trade Review

25. Quant Speak
• News catalyst
• +/- 3 percent
• Increased RVOL
• 2xs ATR
• Risk/Reward 5x1
• Holding above/below VWAP
• Past 10AM
• SMB Radar In Play Rank
• Trend Trades

26. Make the trades your own!
• Jim Rogers in Singapore
• Told everyone to become a farmer
• Give me a hot stock tip!
• Internalize your trades

27. Build from your Strengths
• Understand what you do well
• Trade them more often
• Trade them with more size
• Trade them with a system that is scalable
• Trade them with more confidence

28. Bionic Discretionary Trader
• Custom Filters that spot their A+ setups
• Exit Management Tools
• You cannot miss your A+ setups!

29. Multi-product
• Become a CPT in one product
• Become a CPT and then trade bigger
• Not the best career path anymore
• Margin of error is getting smaller in all
• Express your favorite patterns in other
products
• Intraday swing traders better with options

30. Multi-market (South Africa)
• The largest prop firm in South Africa
• 10 percent of their market
• Teach them US equities
• And help them with LSE and JSE

31. A suburban oasis
• Mansion
• Two maids- braii
• Fully stocked bar
• Lounging area
• Pool
• Gym and shower
• 2nd Fl trading desk

32. First Rule of Coaching
• Show you care
• Credibility
• Trader First

33. A core firm philosophy
• Elite tennis players turned pro traders
• Former athletes will fight better every tick

34. Elite traders need coaching too
• You do not get to make up your own trading
fundamentals
• Head traders must keep traders on track
• Mindset of Brody

35. First Rand
• The Made Up Fade Trade
• Broke out on fresh news and volume
• Shorting and shorting and shorting
• Short the first pop
• But after Time and Volume now you are
making a fundamentally poor trade

36. Naspers (NPN)
• Caught the break above 52 week high
• Made 50k instead of down 15k
• Held until Reason2Sell

37. Scalable Risk Management
• Discretionary traders are wasting energy
complaining about their risk rules
• Rules based on percentages and not P&L
• Percentages are scalable
• Just give them a bigger book
• Develop clear rules
• Trader Buy-in
• If not get rid of them

38. Great and Continual Coaching
• Never a destination for a trader
• Improve everyday
• To become great at anything requires:
Domain knowledge, sustained energy, critical
feedback and purposeful practice
• The Talent Code, by Dan Coyle

39. The Coaches of Phil Mickelson
• Swing coach- Butch Harmon
• Short game coach- Dave Pelz
• Putting coach- Dave Stockton
• Psychology coach- British Open improvement
• Strength and conditioning coach
• Caddie- Bones

40. Trader Coaches
• Strategies
• Psychology
• Mentor
• Head Trader

41. Auto Trading
• Easy software
• Quant support for discretionary traders
• Another revenue line
• Improves their discretionary trading
• Discretionary traders best chance to figure
out the next new market

42. Discretionary Traders Auto Trading
• You do not have to be a quant to join the
world of the quants!
• SMB discretionary traders building models

43. Algos that Hurt Us
• LULU auto buyer 50c to 75c
• .2c cutter
• Liquidity on off dark pool adding slippage

44. The Highly Competitive World of
Proprietary Trading
• Right with direction of stock
• Pay the spread to gather a position
• Contend with slippage with large orders out
– Algos run away from your stops
– 49c exit becoming 12c
– 51c stop becoming 78c
– Adds up for active traders

45. Three Takeaways
• You can be better tomorrow than you are
today!
• Be grateful!
• Multi-market Multi-product Bionic Quant
Discretionary Trader

46. Contact
• mbellafiore@smbcap.com
• @mikebellafiore