Tradervue Conversations Episode 5 - Justin Spero

Tradervue Conversations Episode 5: Justin Spero

Welcome to the fifth episode of Tradervue Conversations! In this episode, we interview Justin Spero, a professional trader who has been trading at the proprietary firm SMB Capital. years and who specializes in equity futures. In this conversation, you are going to learn how Justin started trading, how he got hired by SMB Capital, how he became consistently profitable, and a lot more.

Justin Spero

Tradervue Conversations is a series of videos published on our YouTube channel where we interview professional traders to learn about their experiences and advice. This is the last episode in the first edition of Tradervue Conversations, but we are going to have a second edition soon in the future. So make sure to subscribe to our channel and turn on the notification bell so you won’t miss new episodes when they are published.

You can watch the discussion in the video right below or read the transcript.

Table of Contents

Video Interview

How Justin Spero started trading

The advantages of working at a proprietary firm

How Justin Spero became consistently profitable

Why you should focus on survival in your first year

Justin Spero’s trading edge

Justin’s advice for adapting to the current market conditions

What Justin does on a daily basis to improve as a trader

Justin’s advice for developing and struggling traders

Closing Thoughts

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Video interview

Watch our conversation with Justin Spero here:

If you prefer to read the conversation instead, here is the video transcript:

And here is the video transcript if you prefer to read the conversation instead.

How Justin Spero started trading

Richard: Alright, hello Justin. Welcome to the first edition of Tradervue Conversations. We’re happy to have you here. How are you? How is it going?

Justin: I’m doing great. Thanks so much for having me, Rich.

Richard: Good to know. Such a pleasure having you here, I’m super excited about that. So let’s get started. Tell us a little bit more about yourself. How did everything start for you? How did you start trading?

Justin: Yeah, sure. So, well, I would have to start back in high school, maybe when I was 15 or 16. I had some investors in my family and that’s what first got me interested in stocks, and that kind of sparked my curiosity *snaps finger*. And then from there I decided, after I graduated high school, to go to college for finance to learn a little bit more about the market and see what kind of careers were out there. 

While I was in college, I started trading Bitcoin and other cryptocurrencies, which was back in 2016-2017. So I got started early on that and, from there, I kind of joined the investment club at my college and I started trading weekly options. That didn’t go too well for me, but I started getting more involved in trading.

And then, one day, Mike Bellafiore came into the investment and he did a presentation, and I knew right away this is what I wanted to do: I want to go work at SMB. And I got Mike Bellafiore’s email; we started chatting and a couple months later I went into an interview process at SMB and I got the job as an intern. And I was going to college, I was working on the weekends, and I was also commuting to The City, so my schedule was packed out, but I interned at SMB for two semesters, and then from there I got a full-time offer to become a developing trader on the DEX, and that was in Fall of 2018, and I’ve been there since.

SMB Capital Homepage

Richard: Wow, really interesting. Let’s start from the beginning a little bit. First of all, I already know, but for the watchers and listeners, who is Mike Bellafiore and SMB, and what is it about?

Justin: Sure. So Mike Bellafiore is the co-founder of SMB Capital, which is a proprietary trading desk located in Manhattan. What they specialize in is training new traders, and they train to become consistently profitable traders.

Richard: Okay, perfect.

Justin: And he’s also the author of a couple of trading books that you might have heard of.

Richard: Yeah, One Good Trade, The Playbook, really good books. For those of you viewing or listening, make sure to check out those books by Mike Bellafiore.

And so, walk us a little bit through your first year or so while being in college and during your internship at SMB. What things were you learning during that beginner stage?

Justin: Sure. So, as an intern, basically I commuted into The City three times a week and I would spend my day with the developing traders there. And basically they were going through a training process for the first year, and every day they would have to go through a series of meetings throughout the week. So for instance, there was the AM meeting, where the developing traders would go into the conference room with Mike and Carlton—and Carlton is the risk manager at SMB. And they would share their ideas, and we would go around the room and share our ideas, and as an intern, I got to share one idea myself.

And then, they would go back to their seats and they would trade until about 11:30. Then at 11:30 we would go into the conference room and discuss our morning. Each person would talk about the trade that they took, and they would receive feedback from Mike and the risk manager. And then, later on in the day, we would have another meeting which would be called a Reading the Tape meeting. So each of us would record our screens, record the Level 2, the time and sales, one of the charts, and we would go back and review tape on a breakout trade.

So, say there was a higher time frame technical level, and the stock was breaking out, we would all take a look and review that tape and do an analysis on what the tape looked like. When it got above the offers, what the offers look like, what the bids look like, what they would look like when the offers were decrementing. We would talk about that, and then, after the close, one of the senior traders would go to the conference room and he would review his day, what he traded, why he traded it, how he traded a stock setup.

So it’s a rigorous trading process [in] your first year. And that’s kind of what my day looked like as an intern, and because I was participating and making sure I stood out, I was able to come back and get a job as a developing trader.

Richard: Awesome, yeah. It sounds like—and correct me if I’m wrong—it sounds like there is a lot of teamwork involved in terms of preparation and also reviewing. So is that one of the advantages of being part of a prop firm such as SMB?

Justin: Absolutely, it’s a huge advantage at our firm, because you start and we call it a class. It was a class of developing traders; you go through the training process for about a year [or] a year and a half, and then you’re placed on a team, and the team is led by a 7-figure or an 8-figure trader who has been trading for a decade or so. And you trade within that team, and there are junior traders on the team, so SMB is really a team environment and everyone learns from one another, so that’s a huge part of it. I think that’s what makes SMB different.

The advantages of working at a proprietary firm

Richard: Nice. Yeah, which actually leads me to my next question. Can you tell us some of the advantages of being in a prop firm, such as SMB, other than working with a team?

Justin: Right. So it’s a huge advantage. I think a lot of retail traders, traders who learn at home, hear the statistic that 90% of all traders fail. But that’s just not the case when you’re at a prop firm like SMB because we have so many resources. So for instance, the biggest thing was going through that training program the first year and getting constant feedback from not only the risk manager that oversees everyone’s trading but also Mike Bellafiore who has been trading for 20-30 years and also training new traders.

And then other than that, you’re sitting alongside someone who is making 8 figures a year trading stocks, and you’re able to pick their brain. And eventually, you’re placed on a team where you have 7, 8, 9, 10 traders at your disposal, and you’re all sharing ideas and talking amongst one another every day.

I think there are many advantages, and another big one is we also have one of the best trading psychologists on the street, and his name is Dr. [Brett] Steenbarger. So we’re able to meet with him and talk to him once a week or whenever we feel that we need to, and that’s a huge help. He has a ton of experience working with portfolio managers on Wall Street, so he’s a very valuable resource and huge help to all the traders at SMB.

Richard: Yeah, it definitely sounds like a good environment to be developing as a trader. But let’s go a little bit back into your learning curve. So you spent a year as an intern, and then you were hired to become a developing trader to then become a professional trader. How did things change from intern to more like an official position as a trader? And what practices or what things were you doing at that time that you were not doing before?

Justin: Uhm, so I think I was doing a lot of the same things as I was as an intern as a developing trader, but it was just taken to a more serious level. Once I decided “okay, this is my definite career path”, instead of going to the office twice or three times a week, I was there from 7 AM to 6 o’clock PM five times a week. And I would just say that it was a lot more rigorous. And once you start trading live, you realize “okay, I’m not gonna be driving a Lamborghini in a year because this is a lot harder than it seems”.

And that was another big thing to get through because I remember at one point, I guess it was 8 or 10 months in where I really considered quitting. It was hard to see the light at the end of tunnel, but I loved it so much that I said “alright, I know I have to give this at least two years, and even though I’m losing money every day, I know that if I trust the process and I work hard, I’ll become consistently profitable”. And that’s exactly what happened.

Richard: Nice. So, how long have you been trading now?

Justin: I’ve been trading full time—this is year four. A little over—yeah.

How Justin Spero became consistently profitable

Richard: Okay. And so I wanted to ask you during what year, or how long until you started to become consistently profitable and went through that point at which you started to see some progress in your trading?

Justin: Yeah. So, we were encouraged to try all different kinds of setups. So we were learning a lot of different setups and we were trying them all. And really, at the end of my first year, I owe a lot of my success to Tradervue. I import my trades every day and I look at my stats—even now, I do that rigorously.

So at the end of my first year, I think I had 1200 trades for the whole year. And I was looking at my different tagged trades and I said “look, really out of the ten types of setups that I’m taking, there are two things that I’m making some money on”. You know, there were two trades where my win rate is 55%, and my average winner-to loser is 2-to-1 or close to 2-to-1. I said “let me just focus on these two setups”. And I’m not gonna trade unless I see these two setups.

Another big thing was if I lost money in the morning, or there wasn’t a trade in the morning, I would try to make that up in the afternoon. And anyone who has been trading for a while knows that trading in the afternoon is just like, uhm, it’s low-volume and stocks tend to chop around after the morning. So I stopped trading from 12 to 2 [PM], and I only traded if I saw those two setups. Then I started to get consistent, and I started building just those two businesses.

And once I felt confident with those two trade setups, which were backside trades and, I believe, higher time frame breakouts, and I was making money, and my P&L curve started to look like a nice slope, I started trying other setups and studying other setups. And it was important to trade those other setups with small size so they didn’t affect my core businesses, which were the backside trades and the breakout trades.

So that’s how it worked out for me. You know, I went from revenge trading, trading all day long, trading stocks that didn’t even have a real setup to “okay, if I’m gonna do this for a living, I need to make some rules, I need to follow rules, and I need to do what I do well”.

Richard: Nice. That’s really interesting, and I’m glad that you were able to find some value out of the Tradervue tool. I, myself, as a developing trader also have found interesting stats, and understanding your niche and your edge, I think, is really key, especially at the beginning.

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Why you should focus on survival in your first year

Richard: A lot of what you mentioned a few minutes ago kind of reminds me that, during the initial stage, it’s super important to be able to stay in the game and survive. That’s the first aim during the first year or so in my opinion. What do you think about that?

Justin: That is huge. And my first year, I dug myself into a deep hole, and once I finally started becoming consistent, and I saw a couple green months, I actually wasn’t getting paid because I was busy digging myself out of that hole I created. So survival is a big part of it.

And any new class that starts at SMB, I always tell them “you know, your stop might be X, but you should really only be willing to risk 20% of your stop until you’re showing some consistency”.

And I think a big thing is that a lot of new traders, they want to see that big P&L on the screen. They want to make the big bucks, but they just don’t have the skill set to do that yet. And while you’re training, it doesn’t make sense to lose more than you have the ability to make. So for instance, there is a new trader, they fund their account, and they say they’re gonna risk $500 a day. Their max stop is $500. And after they‘re trading for a couple months, their average winning day looks like $150. But on a bad day, they’re losing $400, $500. That doesn’t make sense.

You should only be risking what you have the ability to make until you find your bearings and you find what you do well, and you prove you can trade one setup consistently, and you prove to yourself “okay, I can make a career out of this setup, let me start sizing this up”.

So your first year, I would say, is a learning process, and you shouldn’t be losing more than you have the ability to make in one day.

Richard: Awesome. Yeah, that’s definitely some really good comments around that.

Justin Spero’s trading edge

Richard: And so, let’s get a little bit more into your edge as of now, or your strategy. How would you best describe your edge at the moment?

Justin: That is a really good question. I think my edge really lies in being able to adapt to the market and what’s working. So for instance, in 2020-2021, the market was kind of going straight up, right? Back in the pandemic, of course.

Richard: Yeah.

Justin: So during that time, breakout trades were working, buying the dip was definitely working. And you see traders, now that we’ve come to this period of volatility—really since the start of 2022, they’re still trying to take those trades. There are a lot of people I see—whether it’s on Twitter, wherever it is, they’re still trying to trade breakouts and they’re trying to buy the dip and they’re getting crushed.

So I would say my edge is being able to recognize what is working in the current market environment, studying what’s working, and being able to adapt my trading to that. I remember, in the beginning of the year—or maybe it was right before the New Year 2022, we had a really great breakout trade in Ford. And I did really well, and that was my only breakout trade so far this year, because after that the market completely changed.

And from there, I said “okay, well, there’s definitely a shift in the market, so let me look to see what trades are working, and let me study those trades”. Okay, the market is down 3% a day, but if it pops up into this resistance level, this previous support level is becoming resistant, I think it’ll be a good short. And I’ve seen that happen; I’ve seen a trade happen last week so now that’s something I’m gonna try this week with small size, and if it works, I’ll start sizing that trade up.

So I really think my edge lies in being able to adapt to what’s working in the market. And I also think my edge lies in thinking about the psychology of what’s going in the stock. So if I’m trading on the long side or if I’m trading on the short side, I like to think “what’s the person on the other side of this trade thinking? What are the bears thinking?”.

And an example of that would be: we recently had this low float that was up 5 days in a row and no news. I noticed on Twitter that the ticker was getting a lot of traction, everyone was talking about it. Every time you refreshed Twitter, there was a new tweet about this stock. So I know it’s getting the attention of retail traders, and I know that “hey, this stock is  up 300% in a week and a half; it doesn’t belong up here. I think there is gonna be a short soon”.

Now, the stock has put a resistance level, it went from around a dollar to $4.5. It could get above this 4.5, and I tested 4.5 four or five times throughout the day. And the next day, it got above that level and immediately got slammed down. So, right away, my thought process was, okay, I know retail thinks that this is gonna continue squeezing another couple hundred percent, I don’t think that’s possible, and the mere fact that it got above that important resistance level and got slammed down, I know that:

  • Breakout traders are trapped
  • People that were buying for short squeeze are trapped
  • Anyone buying calls—there were options for this ticker, they’re wrong

And that is what’s gonna fuel this backside move, that down move.

So I think a big thing is thinking about the psychology of what’s happening. Not just looking at technical levels, resistance and support, but thinking about what’s actually happening.

Richard: Yeah, that’s really interesting, knowing who you’re trading against and where they are, what are they feeling in terms of the trade that might be happening. I think that’s super interesting, what you just mentioned there, Justin.

Justin’s advice for adapting to the current market conditions

Richard: And so you did mention a couple of minutes ago your edge being able to identify when the market conditions are changing. That’s actually a very interesting subject because, very recently, I know it’s not an exact science, but I can say since December [2021] and the transitory change from the central banks in the US, in my eyes, things started changing drastically.

And so what I’m trying to say is we started to enter into a more volatile market, and also the Russia/Ukraine geopolitical tensions started as well. So it’s very different market conditions from 2020-2021. So what is your take on adapting to times when your strategy goes out of style? You mentioned a lot of traders are struggling—you know, on Twitter—and are trying the old type of trading when things were kind of rallying but no longer works. What would you suggest to struggling traders, especially in this kind of bear and high-volatility market?

Justin: Well, look, you can’t be stubborn, and if you notice that “hey, this setup that I’ve had a lot of success with in the past is no longer working and I haven’t made money trading this setup for a month, and my stats from last year on this setup were excellent, and now I’m looking at the stats over the past month or two and they’re horrendous”, you can’t be stubborn.

You have to realize that “okay, that’s not working in this environment, but if the war ends or inflation starts coming down, and the uptrend resumes…”, well, okay, you have those setups to fall back on if and when that happens. But for right now, that’s not working. So find the trade that is working. Talk to other traders, go to your trading network, ask other traders what’s working for them and study that setup.

So for instance, we had a big week for earnings. We had Microsoft reported, Facebook reported, Amazon reported, Apple reported, and if you look at these charts and study them, you’ll notice—more so for Facebook and Microsoft—that “well, okay, let me see what these stocks do that are gapping up on positive earnings in a bear market. Let me see what they do”. Well, they’re putting in a resistance level, or a top after the number, after the print. And, in the morning, they’re testing those after-hours levels or pre-market highs and they’re failing from there. They’re going red on the day and they’re starting a downtrend. Okay, so that’s interesting. I’m noticing that the bear market stocks that gap up on good news fail into a resistance level and they trend lower. So okay, I’m starting to see a setup that’s working. Now, let me take screenshots of this chart, of this pattern, let me make some notes, because I think I’m on to something here.

So really, that’s the kind of process you should be going through if you’re struggling. You should be looking for what is working and try to develop a setup off of that.

Richard: That’s interesting, and correct me if I’m wrong, but as you get more experience, you have all these setups like a book of charts. You can always go back to them and apply them depending on the market conditions. It’s almost like you have different cards to play depending on what type of game you’re playing if that makes any sense.

Justin: 100%, absolutely.

What Justin does on a daily basis to improve as a trader

Richard: That’s super interesting. And so, what you just mentioned about printing those charts and putting a book of charts leads to my next question, which is more about the mindset of a trader and the best practices as well. So Justin, tell me a little bit more about what you do on a daily basis to improve as a trader.

Justin: Yeah, sure. So every morning, I wake up about two hours before the market opens. I do research. We’re lucky because at SMB we get all market research from JP Morgan, Goldman Sachs, all these different investment banks and hedge funds. We got to read the research and what are the biggest banks and the big money thinking on the street.

So I like to start my day off with that, see what everyone is thinking, then I like to look at what stocks are in play this morning, what’s gapping up, what had earnings, what’s the story behind the earnings, what is setting up right. Alright, now that I see what’s gonna be in play this morning, what is setting up technically on the day, okay, I see that this one is setting up for a breakdown. There was a support level, okay, this is gonna be one of my top watches.

So that’s kind of how my morning goes, but throughout the day I’m continuing to read research, I’m taking notes, I’m writing in my journal about my trading day. After the close, I’m going to the gym every day—I think your physical well-being is super important.

I am talking with other traders every day, you know, “what worked for you today? Are you seeing any setups? Are you looking for any setups? Anything setting up for you tomorrow?”. I am doing Zoom reviews with other traders. So something I started over the past—I guess two years now, is I will go on a Zoom call with new developing traders and I’ll review my top trades from the week. And just by doing that, I gained so much value out of that, because I’m going into the trades in deep detail, like a bar-by-bar analysis, and I’m reviewing my best trades from the week. And they’re asking me questions: oh, well, why did you get in here? Would you have added here? Oh, since you got in there, what was your stop for that entry? And just by going over trades with other traders, it’s just a huge value add. And, of course, they’re learning, and I’m learning what I could do better, where could I have been bigger, could I have added here for a momentum lot?

So I think just doing a review out loud has been a huge, huge help, and I think it’s been a huge contribution to my success.

Richard: That’s great. Yeah, they say that by teaching, you’re learning as well.

Justin: Yeah. And I would just another thing is, I’m always eager to learn and I never have the mentality of, “oh, I’m consistently profitable now, I’ve made it”. I’m actually always scared that I’m not gonna be able to adapt to the market, or I’m gonna lose, or I’m not gonna be able to trade for the next ten years. It’s like, I’m playing the ten-year game, right? If that’s the case, you want to always be open-minded and open to learn. So I’m constantly reading books about trading and psychology, and I’m constantly listening to different trading podcasts and watching YouTube videos. So I’m always trying to learn something, I’m always staying open-minded. I think that’s huge as a trader.

Richard: Yeah, definitely. You’re playing the long-term game, which sounds like a really wise thing to do.

And so, around you in the firm, you see a lot of the best traders out there. What are some of the best practices that pop into your mind that you see other great traders do as well?

Justin: Yeah. So something that I notice all of the successful traders on the desk do is that they all collaborate with each other. And like I said, they are always trying to learn and adapt to new markets and develop new edges in the market. They’re staying open-minded.

Richard: Yeah, that makes sense.

Justin Spero’s Advice for Improving as a Trader

Justin’s advice for developing and struggling traders

Richard: Okay, so we’re starting to run a little bit out of time, so to wrap it up, what word of advice do you have for developing traders or those traders who are having a hard time with these new, changing market conditions?

Justin: My biggest word of advice for new traders would be don’t lose more money than you have the ability to make, and understand that the whole process, from consistently losing money to being flat to consistently profitable, and then going one step further and doubling or tripling your size, and sizing up, it’s a slow process. And I would just say that trading is a marathon, it’s not a sprint. You’re not gonna be driving a Lamborghini in a year for the most case *laughs*.

So just understand that trading is a marathon, not a sprint. And your focus in the first year or so should be finding out what you do well, and trying to build your business. The first year, it’s not about the money at all. So your risk limit should be very low, and you should not be blowing out your account or taking huge losses. You should really be risking the minimum amount per trade until you find a system or an edge that works for you. Then you can start sizing up. So yeah, it’s a marathon, not a sprint. Start small until you start to see some consistency.

Richard: Yeah, that makes a lot of sense. And before we wrap it up, Justin, how long on average would you say it takes, in a prop firm like yours which has all the resources and the networking and the mentors, until a beginner or newbie trader starts becoming consistently profitable?

Justin: Yeah, that’s a great question, and I would just say that it’s different for everyone. I’ve seen some traders become consistent in six months, and then I’ve seen some other traders where it took them a long time, like a year and a half. So I would say everyone’s different, but really by a year and a half, you should know if you’re gonna be able to do it as a trader as a career, a full-time job.

Richard: Yeah, and that’s with—like I previously mentioned—with all the resources and all the education and everything on your side.

Justin: Exactly.

Richard: I imagine, as a retail [trader], it’s probably gonna take you way more than that, if you ever make it as a retail.

Justin: Yeah, yeah. But like I said, everyone is different.

Richard: Yeah, definitely. Alright Justin, that’s been really valuable. And where can listeners hear a little bit more from you?

Justin: You could follow on Twitter. My Twitter is—let me just double-check my Twitter handle here—it’s @SperoTrades.

Richard: Awesome, I’ll make sure to include that in the description. I did mention listeners, but in this case it’s listeners and viewers. Justin, thank you so much, it’s been a great conversation with you, I really enjoyed it, and we hope to see you next time.

Justin: Yeah, thank you Rich, thanks so much for having me. Appreciate it.

Richard: Alright, take care Justin.

Justin: Take care.

Closing Thoughts

Hopefully you enjoyed this fifth episode of Tradervue Conversations! If you did, please subscribe to our YouTube channel, like our video, and click on the bell to receive notifications when we post new episodes.

If you haven’t already, you can watch episodes 1 to 4. This was the last episode of the first edition of Tradervue, but we are planning to have more and more discussions with professional traders in the future, so be sure to keep an eye on our blog and YouTube channel for new episodes.

The traders we interview all use Tradervue to keep a trading journal, analyze their performance, and share notes with other traders as well their coaches and mentors. Try Tradervue for free today and start analyzing your data and uncover the insights you need to trade better.

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