SMB's 'One Good Trade' Philosophy - Questions

[Jonathan Weissberg]

I've recently read 'One Good Trade' by Mike Bella and have a few thoughts/questions I'd be keen to discuss with anyone else who has read it or who is actively trading. The book is highly recommended.

(1) The existence of 'basic trading plays' or principles:

In Chapter Four, 'Pyramid of Success', there's a section titled 'First, be Unoriginal'. Bella seems to be saying that there are certain trading skills that are universal across both time & markets. He calls these 'basic trading plays'. This doesn't mean the setup is EXACTLY the same, or reading the tape in one market teaches you to read the tape in another totally different market. It's talking about principles. E.g., if you learn to start & run a business and succeed in scaling it to 100 employees, there will be certain fundamental skills that would transfer to starting & running an unrelated business.

See:

'Short-term trading skill development is not about developing a brilliant new trading strategy, but learning to execute proven ones. Once you gain experience, and have good habits and skills, you will be able to create new plays that work for you.'

...

'Learn trading skills that allow you to adapt to any market. What works one month may not work the next, but with fully developed trading skills, you can make the necessary adjustments.'

...

'Almost all the money you should make as a new trader should be from statistically measured, basic trading plays, i.e., the ones that most traders use every day to make money and have been doing for over a decade: support plays, breakout plays, consolidation trades, range plays, momentum trades, trades to hold.'

Questions:

What do you think about there being some 'basic plays'?

Bella even writes later (Chapter 5) that

"some start making money within a month, others take over a year. But the reward after all this training time is the trading skills to trade profitably in any market, from anywhere, and for the rest of your trading career."

I have not seen anything like this so far. I've seen people make money and then stop making money and quit. What is your experience?

Could you take SMB traders and sit them on Jamaican or Philippine or Turkish stocks—would those 'basic plays' (support plays, breakout plays, etc.) still exist such that an SMB traders learning curve will simply be one of learning to apply his tape reading skills anew to these markets and adjusting to some idiosyncrasies or do the idiosyncrasies make it a completely different game?

(2) The 'Stocks In Play' model or what I call 'Products In Play'
In Chapter Seven, 'Stocks In Play', Bella discusses their (then) unique approach to trading. A rough definition is any stock that has a catalyst (news, big technical level, large percentage move, unusually high volume).

See:

'You are only as good as the product that you trade. There are too many developing prop traders who do not know what a good product is, how to find one, and waste too many trading days mistaken that the markets are devoid of opportunity.'

...

'You can be the best trader in the world, but if your products do not move, nor are liquid, then you cannot make money consistently.'

..

'You can talk all you want about trading strategies and setups..." but "A stock In play is easier to trade." It's forgiving so you can take a rip, miss a move, and still be exceedingly profitable. Your margin of error and upside are much greater and your risk is lower.'

Questions:
Do you think this is the essence of all active intraday trading, including futures? How can you 'read the DOM of something with no event/no directional order flow? you can't.

Looking at a product that is being traded relative to 500 other products and spread every which way—how can you possibly read or determine anything? However, if there's a large amount of volume coming in relative to the average liquidity, you can suddenly read it, e.g., S&P 500 in March 2020 vs. S&P 500 in 2017.



(4) Don't Predict
In Chapter 6, 'Live to Play Another Day', Bella talks about being overwhelmed by order flow against his position. It's a particular good section that gives a more detailed reason as to why you need stops. As in what may actually cause the potential scenario you see playing out to do something completely different and unexpected.

See:

"One of the more difficult trading scenarios for me is the presence of an overly aggressive seller or buyer. After trading for 12 years, I’ve watched enough tape to know where a stock should be trading intraday. I can sense by the PENNY where a stock should be trading 98 percent of the trading day. Now, stocks are often close enough to being properly priced so that I do not make a trade. But as an intraday trader, I exploit short-term inefficiencies. When I sense a stock is too low, then I either cover my short or get long. When I sense a stock is overbought, then I either sell or get short depending on the intraday trend of the stock. Sounds simple enough, right? Buy low, sell high. Isn’t this what we first learned about the stock market during our 7th grade trading competition?"

"But sometimes institutions enter orders to the market in a state of pure panic. And the traders executing these orders are incompetent. These pikers will indiscriminately drive the price down, only exacerbating their mandate to “Sell, sell, sell.” (Who could forget Randolph and Mortimer in the Frozen Concentrated Orange Juice pits in the 1980s classic movie Trading Places, propping up their fainted trader who got caught long to the tune ofhundreds of millions?) One of my trading plays is to start a position when I sense the wrong price and assume the stock will revert to its mean. This is called a Fade Trade. Remember, I spend 61/2 hours every day, and have for the past 12 years, watching stocks trade intraday. My expertise covers where stocks should be priced intraday... And yet sometimes we are met with lesser traders who just cannot trade, traders who just cannot see the break like I can. And they pump or dump stock at the wrong price."

Questions:

What do you think it means to 'sense where a stock (or product) should be trading intraday'? I can see how you might anticipate various scenarios, but otherwise the only reasonable thing I could think of was him referring to VWAP levels.

 

[fan27]

There are some nuggets of wisdom in there. Regarding "Basic Trading Plays", for example, equities and equity indexes have an upward bias. There are times when they have more of an upward bias than others. Identifying those times, one can look for setups to take advantage of that.

 

[Snuskpelle]

Haven't read this author but it sounds like yet another trading book with too many words. Yeah, there is a thing called mean reversion and its opposite called trend, and sometimes you can trade either. Sometimes shit happens and you get stopped out. Filtering out stocks where evident behavior (such as a strong trend drift) can be effective.

The premise that different people can be taught (or more commonly teach themselves) what on the surface looks like the same skills and end up with entirely different results is certainly valid, and not just due to randomness. The premise that some simple things (e.g. trend following a hot stock) still work is valid as well.

Authors like this one thrive in ambiguity. Nonetheless, you might be right he's not merely referring to implicit/subconscious knowledge when he refers to "where a stock should be trading intraday". Speculating on what his signal is futile though unless you see him mentioning something testable.

I did like your selection of quotes (and I get a sense you quoted the most important parts), so good effort on that. IMO we shouldn't put much effort into reading vagueness though or we cross into the land of magic thinking.

 

[themickey]

......Could you take SMB traders and sit them on Jamaican or Philippine or Turkish stocks—would those 'basic plays' (support plays, breakout plays, etc.) still exist such that an SMB traders learning curve will simply be one of learning to apply his tape reading skills anew to these markets and adjusting to some idiosyncrasies or do the idiosyncrasies make it a completely different game?.....

You wouldn't be able to take a trader and drop them into a foreign seat and have them hit the ground running immediately.
Think like this: if you watch anything long enough you'll soon understand it.
A dog lover for example understands dogs and if they become familiar with any dog, will know its behavior.
Drop an experienced USA trader into a seat in Amsterdam and he'll be quicker than anyone to run with the trades, but not from day#1, that's asking a bit much, senses need to adjust first to the environment.

 

[MrMuppet]

@Jonathan Weissberg :

First of all, One Good Trade is one of the few trading books worth reading.
However, their strategy is just like any other: It has to resonate with you and your situation in life or it won't work.

It doesn't make any sense to go after intraday strategies if you have a fulltime job, for example.

I feel you're missing the point of the book. You should not sift through the process part just to get hands on the methods.

The only thing that matters is your trading journal. You sit down and write down everything you see: Big picture, fundamentals, catalysts, levels. You summarize your day, you review every weekend.
You do this every single day for the rest of your trading life and you will have success. By journaling you feed your brain and you'll be able to connect the dots and figure out new strategies.

That's what you should copy.

Most people don't do this, they just look to copy methods instead of processes...and that's why they don't make it.

 

[TheIcon]

Another enjoyable post - @Jonathan Weissberg

Are you an Australian based prop trader by any chance?

Ironically this book was the first I've ever read on Trading. It would convince me to go for it full-time and I've recently begun a journey as a Prop Crypto trader.

Funnily enough the basic plays passage reminds me of this meme attached.

I've gone through a similar evolution in Trading. Gone through looking at Pivots, Trendlines, Market/Volume Profile and Vwaps with STDS etc. But end of the day it's the simple stuff that works. Not saying either those things I mentioned can't work. But the skill set of identifying areas to lean on and Orderflow is a foundation for successful discretionery trading. I guess less is more.

My initial problems were trying to "reinvent" the wheel. I'd find interesting statistics on Coins and think that was all i needed for a strategy with dynamic indicators.

I'd argue a lot of my success is based off the product I select to trade for that day. I'm developing an equities approach to Crypto with my own amendments. Obviously catalyst/news events aren't as prevalant as Equities. But look at XRP recently with the SEC notice. You can make your entire year by having a short bias during that week. That certainly makes the job easier. Especially if you're a guy who takes trades out of boredom, a moving product eliminates that risk.

I definitely think being the man at 1-2 setups and applying that to multiple products in the same asset class is great. What's the old saying "I fear the man who has practiced one kick 10000 times, not the man who's practiced 10000 different kicks once".

I'm not much of a DOM guy. I prefer Footprint charts and Heatmaps for Liquidity. Those are quite specific to Futures/Crypto. So it's hard to say If that skill set to translate to other markets. Honestly staring at a traditional time/sales is horrific for me. But those are the skills prop shops teach for a reason.

It's always tempting to flip biases on a product. I've been burnt trying to do the same thing. It's a skill I'll develop with screen-time. But for now I like to stick with one bias on my trading idea. Just because price hits the 2nd STD of a VWAP, doesn't mean it'll turn around. Especially true in Crypto haha!.