The Pro’s Process - Mike Bellafiore

The fourth in my series of posts asking Pro Traders about their psychological processes.  Delving a little into how it feels to them when trading.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader.

One of the key features for me was that I wanted traders with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders more to learn from.  

I’m very fortunate to have a great line up and this week is particularly special as I have Mike Bellafiore Co-Founder of SMB Capital. Not only is Mike a long term trader himself but is central to the training, mentoring and managing of traders at his firm.  So without further ado….

I’m doing a series of blog posts looking into how professional traders actually go through the psychological processes of trading but also some of the aspects that they might do outside of trading which people don’t typically think of. I remember in Mike Martin’s book The Inner Voice of Trading that you have a thing for running round the big loop in Grand Central Park and I know others have yoga and other things as a way to balance their trading. So I’d like to delve into that a little bit.

Yes let’s tackle that. You don’t want to make trading too important in your life. Not that it’s not important but you need to have other things outside of trading that are important to you. You’ve got to have good friends, you’ve got to be close to your family, you want to have hobbies that interest you whatever they are. So for example after the close I kind of like reading up on politics, I’ll watch Morning Joe or a hardball that I DVR. I certainly like my sports so I’ll catch a bunch of Yankee games. I just got married so my wife and I will make sure that we at least once a week go and find a restaurant that we haven’t gone to. We’ll travel – we’re going to France in the fall, last year we went to Italy. So whatever the things are that you enjoy you want to spend time after work doing that because what happens is you make too much of each trade. If there aren’t things outside of your work that give you gratitude, that bring you happiness you can find yourself placing way too much importance on your trading, on that one trade, and that’s not good, it’s not healthy. It’s a performance sport and you’ve got to keep it in perspective – it’s important but it’s not everything.

And Mike can I ask you if that is something you have always done or is it something you have learnt to do having been in the business a long time, or were you always quite active in making sure you had a holistic outside life alongside your trading?

 Before I started SMB and I wrote about this in One Good Trade I used to actually close up shop after the close walk across Central Park from the East Side to the West Side and spend a couple of hours playing hoops and then head home and get a little dinner and then maybe watch a Yankees game. Then brushing up on some charts and maybe talking to some of my friends and then getting ready for the next day. And then when I started SMB I got away from that. It was 24/7. It took up every bit of energy I could muster. It still takes up a tremendous amount of effort but you know I have recognised that there is only so much good work I am going to get done during the day and if something doesn’t get done today it doesn’t get done today. It’s better for myself to do some of the things I want to get done during the day, have a little bit of downtime for myself, and then go about tackling the next day the next day. So I definitely noticed when I started SMB that I was spending too much time working and I was starting to burn out a little bit and I had to get back to doing some of the things that I enjoyed which I did when I was just a trader.

With your role of obviously having traders working for you is the importance away from the screen and having other things in their lives, maybe like shooting hoops, doing yoga etc something you actively try to enforce with them?    

Yeah. What we actually try to do after the close is when one of our guys starts to be profitable I start to work with that trader one on one every day. So what they will do is they will send me a daily review in our proprietary review format of what they did well and what they didn’t do well and I will ask them along the way to take the temperature of their psychology and it will push them along the way to building their strengths. But I will see, and I have seen over the last couple of months, that there are two guys on my desk who have been talking a lot about doing things outside of work to improve their work. And I have one guy on my desk who is probably going to become one of our best really terrific traders who gets very tired during the day. He has to be careful about just putting too much into it. So like the Miami Heat coach might take out Lebron James for a blow, well he actually needs to take a blow and maybe take a walk at ten o’clock, maybe go for a walk at two thirty, maybe instead of staying every night until seven o’clock head out at five o’clock one day. Make sure that you grab your buddies for Happy Hour on Thursday and head to the bar and have some fun. So yeah we watch for that.

Otherwise in his situation he could over cook himself; is that what you are on the watch out for?

Yeah absolutely. We actually experienced this in the past. From my book one of our really terrific traders we called Doctor Momentum, he was the same way. We actually had him work with Doctor Steenberger on this very issue which was he was so bright and he cared so much that it was actually getting in the way of his trading and we needed to teach him how to care but not care so much. It’s kind of like in baseball where you don’t want to squeeze the bat too tightly.

So these are the kinds of things people don’t expect to hear from people on Wall St you know. That you are conscious of the psychological side, conscious of having relaxation factors in place, that you have psychological skills central to your trading set up. It’s one of the reasons I wanted to speak to people and perhaps put it out there for people who are starting out as it’s not necessarily something that is seen as going hand in hand with trading and the finance world.

Absolutely. So we’ll do things like teach our traders how to do visualisation exercises. I was actually with John Locke and Seth Freudberg. John created an options strategy trade for our options trading program and Seth runs our options trading. John has a lot of experience in coaching people how to be better and we were talking about the things that we teach on our desk to teach people how to visualise. So yeah it’s part of our training program. You have to learn how to get better at certain things. The most important thing, the most typical thing that an intra-day trader faces is that they trade on tilt. They just get angry. There is so much rejection in the type of trading that we do, we’re wrong so much that you have to get used to being wrong. And for guys who are incredibly ambitious and have always been successful in everything they’ve done it’s hard to come to work and potentially be wrong 60-70% of the time and still understand that they are in a position to have a really good day. So we’ll teach them visualisation exercises. We’ll make sure that every day guys are taking their temperature on how they feel. You know we stress you’ve gotta get some rest, you gotta get your eight hours – people perform better if they are well rested. You know we will make sure if they are struggling with certain psychological issues…..another one is a fear of getting too big in a certain stock. We’ll work with them on that. It’s a very important part of trading. A lot of times traders, particularly new traders spend too much time on the things they are actually not that good at and they don’t spend enough time on the things that they are good at and pushing themselves to be better. I was screaming at our desk last week. They were all pumping their chests out because they thought they had a really good day and honestly they should have made a lot more.

So Mike for someone who is not in a prop firm what would be your one bit of advice that you would say people would have to do to emotionally handle trading? For an aspiring trader if you could give one piece of advice?

So I think you want to keep a list of the things that cause you to trade off your game. So if you for whatever reason get upset a bunch while you are trading you want to sit down and make a list of the things that are setting you off. If there are reasons for why you can’t get big in a particular stock or market you want to sit down and write out what those things are. Then you want to start to work on conquering that under performance. A lot of times the answer is visualisation exercises. A lot of times the answer is just practice. I think a lot of people don’t understand that trading is a performance based activity. It’s not just knowledge based. So you could know a lot about a particular set up or the market but that doesn’t mean that you can actually execute in real time.

So you have to serve your screen time to have enough repeatable experiences to make it work for you.

Yeah and you have to have developed the mental skill to actually execute in real time. So let’s say you get angry too much. You make a list of all the things that set you off. Then you do visualisation exercises one by one on each activity. So for myself I get upset when things are unfair. So if there is too much slippage in a particular stock that can upset me. Some of the things I have had to do are, identify that, write it down….writing something down on paper is a very important powerful part of learning. You make a nice connection with under performance when you do that. Then you spend a couple of minutes in a quiet place breathing and getting calm. Then in as much detail as you possibly can you visualise yourself getting upset because there is a bunch of slippage in a stock, what are you wearing, what does it sound like around you, what do you see, what do your screens look like, what does it look like to the guy to your left and right, and the ceiling and the TV’s……everything that is going on around you you want to replay to put yourself back in that position. You want to get mad. You want to get yourself mad like you were before. Then you want to expose the logic of getting mad by saying: look this isn’t really going to help me, there’s no reason to get upset, I’m going to make a bunch of trades during the month one trade isn’t necessarily going to make my month and then you’re going to breathe and get yourself to calm down. So before that activity you are just going to have one response to when there is too much slippage in a stock which is you are going to get angry. Your brain is only wired to one response. But you have to actually train it to have another response. So that after you do that you will have a choice. I can be angry like I was in the past or also now I know how to get myself pretty calm pretty fast and let me try that approach. But you can’t just say to yourself Richard it’s immature of me to get upset because there is too much slippage in a stock and then when there is too much slippage in a stock think that in real time you are just going to be calm. It’s not the way it works.

You’ve given me some great answers thank you. So that I don’t take up much more of your time and so that I cover most of the questions I have asked the other traders can I ask you how do you now feel when a trade goes against you?

The way that I’m thinking when I’m trading is what’s the right thing to do? Today’s a perfect example of this (04/06/12). Friday we were very weak in the market and we noticed today that 128.20 on the SPY was a market resistance level intra-day and that 128 was another important trending technical level for us. So all I’m thinking about is as long as we are below 128.20 I’m going to stay short. If we get below 128.20 and we are holding below there my job is not to be a wuss and not get shorter, my job is to get shorter and whatever happens happens. That’s the way that I look at the markets. What’s the right thing to do?

So have you managed over the length of your career to be completely pragmatic and calm with the experience of when a trade goes for you or against you? Or do you have differing emotions? Obviously some people get very excited when the trade is going their way and very distraught when it is going against them. Are you completely balanced or do you still get that kind of adrenalin rush when something is going your way and the anger perhaps of it not going your way?  

I think it is impossible to always be calm and I’m not sure it’s a good thing to always be calm. I think you want to actually learn to use your emotions as well. So one of the things that you are going to want to learn to do as a performer is take your anger and use it as fuel to do better. So if for whatever reason I get angry at a particular trade,which I do, then I start blaming all the other people I can blame: the market’s rigged, Goldman Sachs those guys are dishonest, JP Morgan they stink, this stock is no good… well I’m not really using that anger in a constructive way. But if I say wow I’m really p**sed off that I now put on this huge market trade at 128.20 and added at 128 when it went against me. Well I want to use that anger to be like well why did it go against me? What were the things that I could have done better? Was I in the wrong stocks? Did I actually make something of the market that wasn’t really there? I’ll go back and replay the trade and do work and that’s positive. That’s really positive. Look there are certain times when you just kind of feel a position isn’t really working the way that you want it to and that might upset you a little bit and you need to probably learn to take that position off a little bit, lighten up in that position when you feel that way. So I think the big picture is that generally you want to be as calm and as Mark Douglas says trading in the zone as much as possible but as Denise Shull has recently written you also want to learn how to use your emotions and use it as fuel to get better.      


I’d like to thank Mike Bellafiore for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about Mike Bellafiore you can find him:

Or on his website:

On twitter: @smbcapital 

Or read his excellent book: One Good Trade


Previously in the series:

David Blair - read it….. here

Charles Kirk - read it…

Matt Davio - read it…


Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.