a wonderful read
I just recently finished “The Playbook” by Mike Bellafiore. Mike is a well known and respected educator and trader amongst Wall Street. He is the co-founder of SMB capital, a proprietary trading firm in Manhattan. I owe much of what I have learned in my journey as a trader to Mike and SMB capital, their trading education is second to none
Do not worry about loses as a trader. Your job is to do the right thing. And if you have an edge, you have to take the trade. Losing Money is part of the game.
Playbooks in trading
The Playbook is a guide to becoming a consistently profitable trader, and then Your Best Trader, as Mike puts it. Every professional has a playbook of sorts. A football team quite literally has a playbook of plays that work best for them. A professional basketball player has certain favorite maneuvers that allow him to facilitate past the defense and score. In the profession of trading, it is no different. As a developing trader, the market requires- no, demands of you to form a playbook of trades that make the most sense to you. In forming a playbook, you allow yourself to internalize the type of trades you want to make.
Implementing your playbook
Trading is a game of pattern recognition, and having a playbook full of your best setups enhances your pattern recognition skills. Document your favorite trades, the ones that you truly understand your edge in. Then, refine these setups into the ideal trade. If everything could go right in your favorite setup, what would that look like? Your answer to that question if your first Playbook trade. Mike often refers to the ideal trade as an A+ setup. Cleary define the variables in your A+ setups. The variables may include a certain moving average you use, VWAP, tape reading skills, technical analysis, pivots and so on. The variables are of course unique to your trading system. The variables, along with other traders behavior, are what control the outcome of your trade. We only have control over one of these, so it is important to have a deep understanding of your edge and how it applies across multiple time frames. Mike offers these variables as components of a Playbook Trade towards the end of the book: The big picture, Intraday Fundamentals, Technical Analysis, Reading the tape, intuition, trade strategy, trade management, trade review. This if of course just a suggestion from Mike, and we as traders should take from it and make it our own. Once you have identified your ideal trades and documented them in your Playbook, you must support them with data. Trading is a game of probabilities and math. You must have a fundamental belief in probabilities in your trading to understand how it effects your Playbook trades. Each Playbook trade is not going to go as planned. The important part is that you executed on an opportunity presented to you. A playbook trade does not suggest a 100% win rate, but if your Playbook trades have significant edge and you know how to manage your risk, the winners will far outweigh the losers.
