2 Paths to Making More as a Trader (not one!)

I want to share an important lesson I have learned observing many elite traders.  It is a lesson that some have not yet learned as they seek to make more money.  It troubles me that some think there is only one path to make more money, when that is just not true.

Let me share a recent anecdote on our desk, where we shared this with two rising traders as they worked to make more.

Two firm traders experienced breakout years in 2020.  They sit on a terrific trading team, lead by an invaluable team leader.  They have shown edge with active short-term trading in their individual firm trading accounts, their bread and butter.  And they have expanded their trading business by opening joint accounts to explore other strategies with multiple firm traders.  These strategies mostly are longer term, as they seek to forge new sources of edge and revenue streams with their trading.

These two firm traders have recently experienced a drawdown in their trading, mostly from their newish longer term trading in joint accounts.  The drawdown is significant.  It is a new trading experience to sit through large losses like these for these traders.  In reviewing their recent trading, a central trading issue came up for them to decide upon for their future trading.  It is something with which every trader must grapple.

Option 1: Should they learn to push past the discomfort of these losses to reach new levels in their trading?

Option 2: Should they adjust their trading so they never drawdown as much in the future?

It is often assumed traders need to learn to sit with more discomfort to become a bigger trader- Option 1.  This is not necessarily true.

You do not have to learn to stomach more pain to make more.  You do not always have to learn to take more heat to make more.  More pain does not always equal more gain.

Specifically, based on my observation of elite traders:

One elite trader with whom I work, hyperfocused on his trading executions to make much more.

Another elite trader at our firm, significantly improved his selectivity to have his best two trading months ever, even when the market offered less opportunity.

Another star trader shunned his swing trades to produce his best trading results.

Another huge producer became more systematic with his entries and exits to make much more.

Yet another huge trader came to recognize he just couldn’t handle large drawdowns and purposely shies away from them.

Now conversely some do seek to push past their discomfort in drawdowns to make more.  They get used to 10k being a loss they can handle, and then 30k, and then 100k, etc.  In fact, one experienced trader risks one million per trade on his best trades.  And they do all of this with trading edge so that their profits become larger.

But but but I just want to share and make clear to traders coming up the curve, you do not have to learn to lose more to make more.  And you should not feel you have to learn to handle more pain to make more.  Or that you are being a wuss for not sitting through the pain or larger losses.  Or that you are not tough enough to make more because you cannot stomach losing more.

There is really a right path for you to make more.  For many that is less stress and less drawdown and less volatility in their PnL.  And there are real traders, making real money, at an elite level, who have followed this path.

Important disclosures

Mike Bellafiore is the Co-Founder of SMB Capital, a proprietary trading desk, and SMB Training, which provides trading education in stocks, options, and futures. Bella is the author of One Good Trade and The PlayBook. He welcomes your trading questions at [email protected]