Here is an anecdote from our proprietary trading desk in NYC.
A consistently profitable trader (CPT) shot me an email this week to chat about struggling with a recent bump in share size and risk. He felt he had taken a step back with his trading after being given the opportunity by the firm to take a few steps forward with his newfound share size and risk.
His recent struggles:
- forcing trades
- forcing size with trades
- hitting bids to enter short trades because he could
- unease with the new numbers on his PnL
This CPT had experienced this before with recent bumps. So we chatted about a solution going forward from here. If not, the next bumps in the future would be met with similar struggle.
The good news was this trader had been through this before so we shared the optimism that he would find his way forward again.
My textbook solution, literally from The PlayBook, was to think in percentages. He was prepared for a weekend of review to get back on track by studying his past reasons for success. I asked if he could breakdown his past trades with edge into percentages of risk based on his intraday stop loss. A+ trades might receive 30 percent of his intraday stop loss, as an example. B trades might receive 20 percent. Feeler traders might receive 10 percent.
This CPT felt he would be able to do this and could start applying this to his new share size and risk. All he would do was change the share size and risk in percentage terms based on his new and higher intraday stop loss.
Moreover, it is common for traders succeeding to become overconfident. After all, he earned his bump because he was performing. Performing well often requires self-awareness to be careful that overconfidence will set in and infect trade decisions. Overconfident trading can be quite dangerous. This CPT agreed this was worth taking periodic temperature checks.
Entering more sloppily with larger size is a recipe for underperformance. Essentially, you want to be trading the same way you had with smaller size and risk at levels higher. Entering shorts carefully on offers substituted for hitting bids will negatively impact PnL. Worse you are completely changing your trading and risk your edge. Directly, I said this needs to stop.
Using a Dr. Steenbarger, trading coach, analogy of lifting heavier weights, we moved to a new observation. When you hit the gym and start lifting heavier weights, they are….. well heavy. Over time your muscles get used to the heavier weights. Just like with added size and risk, the trader through exposure will get used to this new size. This seemed to comfort the trader.
Talk sessions are just a start. Now it’s up to the CPT to do the work required to push through this challenge. He will. He has in the past. He is inspired by watching others on the desk excel to do the work. He is inspired to become the next High Performing Trader on the desk through smart work, talent, patience, coaching, mentoring and individual edge.
As always, these are the stories from a pro prop trading desk. I know they are shared by the new and developing non pros. If our guys can overcome these challenges with solution-based techniques, then so can you.
*no relevant positions