P1: OTA

c04
JWBT298-Bellafiore

Pyramid of Success

June 15, 2010

8:46

Printer: Courier Westford, Westford, MA

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handing out toasters, as they reincorporated to bank holding companies.

These Wall Street icons would now be subject to more intense regulation as depository institutions. Washington Mutual, a thrift that had grown
by leaps and bounds in recent years was seized by the FDIC, creating
the largest bank failure ever. PNC Bank soon bought Ohio-based stalwart
National City, and California megabank Wells Fargo bought fast-sinking
Wachovia.
With Wall Street and Main Street simultaneously collapsing, SMB must
have gone out of business, right? No. Mike, you blew up your trading account? Nope. This was the best intraday trading time period since 1999.
And let me say that I hated every day during this crisis, even with the outsized trading profits.
Your job as a trader is to exploit excellent risk/reward opportunities,
but this not how I want to make money. Good people lost jobs that will
never return. Historic firms were just destroyed in a blink of an eye. On
my desk, I wondered if it was possible for our entire banking system to go
down. Was the money in my bank account safe? Did I need to withdraw
it all and put it in a safe in my apartment? Would all of these trades I was
making eventually clear? I didnt really think any of this was what might
happen, but I did have these thoughts. The whole thing made me sick.
It is a very strange feeling to sit on the trading floor of a firm you built
from nothing, see your traders flourish, and wish it would all just stop.
And there was still more to come. The financial crisis spread to
Europe, which was apparently more overleveraged than America. The Fed
cut rates to 1 percent, and eventually to practically nothing, a target
rate in between 0 and 0.25 percent. The Central Banks coordinated cut
rates. China ordered a stimulus package. And the US government passed a
$700 billion bailout of the nations banks. Yes, this all really happened in
less than a year, actually, more like a few months. Talk about a trading
opportunity.
Anyway, enough of the painful history lesson and back to trading. At
the start of 2009, shorting the new intraday low, particularly in GS, would
manifest a 50c rip (see chart on the right below of GS). With just this trading
play of hitting the new low, you would frequently lose money. But with fully
developed trading skills, you would adjust, and we did. We waited for GS
to spike after the new intraday low and shorted into an upmove. When a
new intraday low was created, then we covered.
As you progress, you will get better at the plays that you are taught or
learn. You will learn to trade with more size incrementally. You may stumble across a new play here and there. But almost all of the money that you
make as a new trader should be from statistically measured, basic trading
plays. Think of it as the first few pages of a high school football playbook,
basics up front, advanced stuff later on. On our desk, these are the plays
that our partners and senior traders use every day to make money, and