A Focus on Immediately Being in the Money Helped this Trader Improve

Jul 10th, 2014 | By | Category: General Comments
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I had a conversation with one of the traders on our desk end of month congratulating him on his cashimproved performance and  inquiring on the reasons for it.

We sat in my office and I congratulated him on improving from consistently negative to flat for the month.   Come again Mike?  Why is that something for which to congratulate a trader?  I thought the purpose was to make money?

Those of you who read my blog are aware that I view consistently negative to flat as a significant step.  It is.  Most never get here (to flat for the month) as a trader.  Granted we want better than flat, but you rarely see a trader go from consistently unprofitable to consistently profitable without first showing they can be flat for the month.

So I asked the trader the reasons for his improvement.  He said something interesting that is contrary to what I hear from a majority of underperforming short term traders.

A common correction for the underperforming short term trader is to widen their stops.  You hear them say things like:

“If I just give my stocks more room I will start making money.”

“If I give my stocks the real stop, I will start making money.”

Maybe. In most cases…not, the reasons for consistently unprofitable span more than their stops or are not the result of their stops.  And this was not the case for this trader.

His improvement in his words came from focusing on and keeping only the positions that started working for him right away.  He felt he was giving his stocks too much room, that his stops were too big.  When he focused on setups where he would be in the money immediately his results improved.  He cut trades that did not start working for him quickly.  If he was not immediately sure the position would be a winner he exited, regrouped and started fresh.

For this trader, progress was spawned from being in the money faster, feeling less pain, and not giving stocks much of a stop.  Perhaps, this idea is something for some traders to consider for their trading.

Related posts:

A Trader’s Path from A-Z

A Path to Profitability


“You can be better tomorrow than you are today!”

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook. He invites your questions at mbellafiore@smbcap.com.


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  • Patrick Michaels

    I agree with this philosophy 100%. Any time I give a stock extra time, I lose on the trade almost 90% of the time. I think it’s because you’re bringing “hope” into the equation. If you’re “hoping” it probably means that you’re desperate, and if you’re desperate, you’re probably know deep down that you’re wrong.

    The only issue here is position sizing. It’s probably better to start the position small and see how fast it works. If it works quickly in your favor than you add more. You’ll probably skew your Risk vs Reward, but if there is a higher probability that the trade is going to work in your favor, than I think that it’s justified. You don’t want to enter with max size every time, because you will probably be hitting out a lot, and you will die a death by a thousand cuts (fees).

    I don’t know if a computerized version of this exists, but someone should make “time stops.” You put on your trade and then set your egg timer. You can determine what time to use based on your trading style. You’d probably want to use something like this during the time of day that you trade the worst (mine is from 1:30pm-2:50pm). Best of all, I’m assuming that a “time stop” order wouldn’t show up on the books, thus algos can pick off your order and run away.

    If SMB creates this, I want royalties. Perhaps a % of volume done using my “time stop” order.

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