Hi Mike.
I’ve been a long-time reader of your blog and not only love your analysis of the markets, but also how you always point out the hard work it takes to be a great trader. I’ve been trading full time for four years now. I started trading equities based on fundamentals, lost $2k in six months. I read about 35 books over the next six months, determined to learn where I went wrong. I read Edwards and McGee, I read every Candlestick book I could get my hands on, Alexander Elder, John Person, and on and on.
I finally realized that the only way to trade the market without bias was to trade based on price action. I then traded stocks for six months based on Candlestick Reversal Patterns. I lost $500 and realized that I was my biggest problem. I would set a stop-loss at 3% and cover at 2.5% because it looked like I would get taken out, only to have the trade go exactly as I had predicted. I then decided that I would pursue daytrading the futures market, trading the Dow. I spent five months clocking in at 9:30, and stopping at 4:15 trading on the simulator. I felt that I finally had created a great Trading Plan, and had the confidence to trust my analysis in the moment. I made $3500 in my first three weeks trading, I thought I had all the answers. Two years of trading like this and I’ll be set for life! How wrong I was! I not only lost my profit, but another $2000 for good measure. I took off three months to figure out what went wrong. To make an already long story less long, I spent the next seven months day-trading and losing $5500.
I appreciate you taking the time to read this. Can’t wait to read The Playbook. It’s going to be hard for it to live up to your first book, because it’s the best book written on the subject of Prop Trading in my opinion. Thanks.
@mikebellafiore
Thxs for sharing your story. What a gr8 job by you finding your trading product and niche. In The PlayBook one of the chapters is devoted to traders finding their time frame, trading product, niche, and best setups. I have trained dozens of traders who were unprofitable intraday traders and very successful in other products. I would like to think that was not because of any lousy teaching by me :). Likewise I have trained traders who failed at other products and did very well as intraday traders. Trading is about building from the plays that make the most sense to you. Guys like me should help you develop strong trading fundamentals, a methodology to make trading decisions, how to think like a pro trader, how to execute, what it really takes to become successful, introduce numerous trading patterns for you to start mastering, and then get the heck out of the way and let you find your best path while offering mentorship and coaching with your best setups.
Why isn’t your strategy being funded? Many call themselves prop firms but aren’t. Let me explain. I define a prop firm as that where the firm backs its traders. There are too many who call themselves prop firms but are merely arcades. Some of these arcades are even quite big and well-known but still just arcades. What is an arcade? An arcade is a place where you put up money and the arcade will cut you off if you draw down on your trading near the capital you deposited. There is nothing wrong with trading at an arcade. They just aren’t going to back you. As soon as the firm has risk exposure to your trading they will cut the cord or ask you to redeposit more money. I suspect you may have been talking to arcades who were calling themselves prop firms and this is a potential reason they were not willing to back you.
There is another reason: your strategy as you defined it is too risky. We back options traders and I asked Seth for his take on why others were not backing you. Seth wrote:
He can’t find backers because the maximum loss of an uncovered call is infinity. That scares people. You go in overnight with an infinite exposure every night. I would not advocate our backing him for that exact reason. Now if he was willing to cut into his profits and cover it—with a call above the short one that therefore caps our risk, and he trades that successfully for a while, then I’m interested. And I suspect others will be as well.
Make that adjustment to your strategy and we would be interested in talking to you as would other prop firms. Until then your trading poses too much risk.
Mike Bellafiore
No relevant positions
3 Comments on “How Do I Find a Firm to Back My Trading?”
If you can’t be a good day trader, you can’t be a good options seller. And vice versa
Also they won’t fund anybody unless they know they are malleable. They prefer traders with no experience so they can teach them their style.
I appreciate you taking time to answer my question Mike. I didn’t really elaborate on how I trade, but buying a call further out of the money than the one being sold would take away from my edge. My edge comes from the fact that I only sell calls far out of the money, receiving a smaller premium in exchange for the higher probability of success. I’m extremely hesitant to make such a drastic change to my trading plan since I have never had any consistency with any other way of trading.
I’ve watched Options Tribe webinars with Greg Loehr where he talks about theoretical risk vs real risk in regards to his Broken Wing Buttefly. He makes excellent points. A good trader who manages risk on an ongoing basis can exit a losing trade before it becomes a catastrophe. I feel that’s what I’ve done, however I do understand that my trading poses potentially unknown risk, and that is why nobody is knocking down my door to trade their money. Thanks again for the answer Mike.