• Quality of Education
  • Price
  • Credibility of Educators
4.2

Summary

In this article, we take a critical look at SMB Capital’s pivotal training program, the SMB Foundation Training. We look at the credibility of SMB Training, the quality of the education, and how fair the price is.

SMB Capital is a proprietary trading firm located in New York City. The firm was started by Mike Bellafiore and Steven Spencer in 2005. SMB provides coaching, training, and capital to traders, and they employ an “eat what you kill model,” meaning traders only get paid if they produce trading profits.

In addition to their lucrative trading business, the firm has developed a training division that doubles as both a source of profits and a funnel of new traders for the firm. They offer educational courses like SMB Foundation, SMB Options, and Reading The Tape. In this article we’re going to look at SMB Training’s Foundational course, and attempt the most important question: is it worth the money?

Who is SMB Capital?

As mentioned earlier, Mike Bellafiore and Steven Spencer started SMB Capital in 2005. The firm’s rise to prominence can be accredited to two factors. The first is their appearance on the TV series Wall Street Warriors, which aired in 2008. The series recreated a version of the Turtle Traders experiment, in which SMB recruited inexperienced traders to teach them how to become profitable traders.

The second factor in their rise to prominence is the credit crisis. Many traders and portfolio managers from big banks were out of work and had to take “eat what you kill” positions with prop firms like SMB. Many successful traders got their start at SMB like Adam Grimes, for example.

Mike Bellafiore has successfully marketed the firm by becoming the face of their company. He’s written two books, One Good Trade and The Playbook. He’s been interviewed on podcasts like Chat With Traders, Michael Covel’s Trend Following, and TradingStory. Additionally, Mike does his fair share of media. He and other SMB members are often guests CNBC, CNN Money, Bloomberg, and Fox Business, and Mike writes for Yahoo Finance, Brett Steenbarger’s blog, and his own blog.

All in all, SMB Capital is one of the most well-known proprietary trading firms and is one of the few firms where non-Ivy League traders can get hired and be trained by top traders.

For those wanting more information on SMB Capital, Mike Bellafiore’s book One Good Trade is one of my favorite trading books. It narrates the life of Mike, sprinkling useful trading principles throughout.

SMB Foundation

The SMB Foundation is SMB’s most comprehensive training course. The course teaches a broad range of skills to become a day trader of equities, like trading fundamentals, trade execution, finding stocks in play, reading the tape, reading charts, and trading psychology. The course can be taken online or in-house, at the SMB Capital headquarters.

Here are the differences between the online course and taking the course in-house:

Both of these options are quite expensive but the amount of material provided dwarfs most other trading courses. Additionally, it’s not a course of Bella effectively miming Investopedia articles, the course has hours of live trading from Bella and other traders, this another stark contrast to many trading courses out there.

Order Flow

When most people think of day trading, technical chart analysis usually comes to mind. While chart reading is certainly an aspect of the SMB Foundation strategy, much more focus is put on interpreting order flow. The “tape” (time & sales) is consistently referred to as a leading indicator in this course, and it’s a principle that is put into practice everyday at SMB Capital.

Here is a quote from Mike Bellafiore that sums up his and SMB’s view on tape reading:

I meet way too many new traders who mistakenly think that trading is only about learning technical analysis, and then loading up. Reading the tape, learning how to decipher the order flow in a stock is the first skill, the very skill a new trader must develop. The advantages of reading the tape are one: entering your trades at better prices. Two: offering trading plays that may not be apparent on your charts. Charts are lagging indicators, the tape is a leading indicator. Three: reading the tape improves your consistency. A solid intraday trader should be positive for 80% of all of their trading days. Many great traders advocate this technique like Paul Tudor Jones, Steve Cohen, Linda Raschke, and the late Jesse Livermore. For me, tape reading offers the trifecta. A: you can load up. B: you can load up at better prices, and C: you limit your risk.”

There are few basic concepts in tape reading that are heavily emphasized throughout the course. Those are prints, held bids, and held offers. While it seems like it would be quick long, it takes dozens of hours of eye “muscle memory” to really the develop the pattern recognition skills. The course will effectively develop these for you as there are several hours of live trading examples where Mike and other SMB traders talk through their trades and point out what they see on the tape and charts.

Stocks in Play

Another concept that is repeatedly stressed in the foundational course is the practice of trading “stocks in play.” The practice involves ensuring that you are trading stocks that are experiencing catalysts, volume, volatility, or all of the above. The main characteristic that a “Stock in Play” should have is something unusual or unexpected is going on.

The course stresses that even using sound trading principles and practices on stocks that aren’t in play can lead you to being a negative or break-even trader, unless you specialize in that type of play.

Here’s a list of a few catalysts that may classify a stock as being in play:

  • Stock beats Street consensus on any aspect of quarterly/annual report
  • Nearing 52 week high
  • High short interest
  • Analyst upgrades/downgrades
  • Significant pre-market volume
  • Government investigation
  • Unexpected announcement

One can find these stocks through stock screeners and news feeds. It will probably take time to refine down all of your screens and filters to spit out the necessary stocks in play.

Corresponding Futures

The idea that the broad market index’s trend trickles down to the majority of the stocks within the index is one ignored by a surprising amount of day traders. The foundational course stresses the importance of using a stock’s corresponding futures contract as a leading indicator. It’s the idea that when the S&P ticks down, absent of significant upside momentum, most of the stocks in the S&P will also tick down.

My Thoughts

You can say what you’d like about the price of these courses, or the fact that buying it online only gives one access to the course for 60 days, however, it’s my opinion that you’re unlikely to find a course that rivals this one when it comes to day trading stocks. These guys have been living and breathing this business for several years and have developed countless successful traders.

I, and probably most other traders, would argue that there is no better way to learn trading then from a direct mentorship. This entails somebody teaching you things, then helping you correct your errors and set new goals as one gets better. This is what SMB offers in their $25,000 in-house foundational course. It’s value is definitely debatable at that price, however.

The next best thing to direct mentorship is being able to look over a successful person’s shoulder. Imagine wanting to start a restaurant and being able to shadow a successful restaurant owner for a few weeks, it’s difficult to quantify the value of an experience like that. That is what the SMB Foundational remote course offers, at a steep discount to the the in-house course, at $9,900. Again, it’s still quite expensive, even for the trading course industry.

Ultimately, nobody can decide if one of these courses is worth it except you. Each individual’s financial and personal situation will dictate that.