In this post, I will share an idea to go from consistently profitable trader to star trader. I will share an effective daily exercise that I recommended to a consistently profitable trader on our proprietary trading desk in NYC, who wanted to to touch the next level in his trading. Let’s dive in.
During my remarks at a recent virtual happy hour for our trading desk I volunteered, “If there is anything you need, anything you need to talk about, anything you need help with, please feel free to reach out to me.” One consistently profitable trader did writing:
As I review my week along with potential opportunities for this upcoming week, I find myself ruminating over my trading — both the growth I’ve experienced so far this year and the growth that I desire and expect over the next 8 months. You had mentioned Thursday at our virtual happy hour that we should feel encouraged to reach out to you if we have any questions. This struck a chord with me, as I feel that I’m at a critical (and exciting) juncture in my trading career. I am ready to make a giant step forward. So I wanted to ask you a question.
With all your personal trading experience as well as experience as a coach, what advice do you have for someone who visualizes big things in the near future and is trying to take each day and each trade as steps towards accelerating this growth? I am a consistently profitable trader. I have proven this to myself over time. I have become increasingly more consistent and profitable over the last 5 months. I know what kind of trader I am. I know my setups. I have performed consistently in different environments. I have worked hard to prove to myself that I have control and consistency in my trading. I have considered this to be a necessary element for a foundation for growth. My objective now is to be doing this much bigger. I know that I am capable of having 5k, 10k, 20k, 50k, 100k+ days not too long from now. In the moment, on an individual trade basis, sometimes I fear the prospect of undoing the hard work I have put together over the last week, month+, etc. via just one trade. I know this is just a mental block and a fear of short-term setbacks, so I am doing everything I can to work through that, including visualization and reorganizing my short term priorities.
Last week I had a record trade intraday. This did not close out as a record trade, as I experienced a decent-sized loss in the name leading up to this trade. But it was a 2k+ positive swing via a single trade entry, which was a new record for me, and a good way to bounce back from the initial loss. I can feel the growth accelerating, as I know it should be, and I want to make sure that I attack the next few months accordingly.
When you were developing as a trader and working on pushing size in what you do well, were there any focus points or self-talk that you found valuable? Do you have any suggestions for me here? (end)
The phone call with a proprietary trader on our desk
I asked to have a phone chat with this trader, who I like immensely. I take great pride in the quality of the people that we attract to trade with us. This trader is one such example. I am rooting like heck for him.
Having read his email and giving it some thought to it on a long morning walk, I had an idea of an effective trading exercise I would suggest to him. But I wanted to hear in his own words what he perceived this challenge to be. I wanted to hear from his voice the true motivation for his email. In his own words, what he really wanted to know was how to go from consistently profitable to star trader. Becoming a consistently profitable trader was a nice accomplishment for him, but not good enough for his ambition. And I might add, that no one joins SMB to become just a consistently profitable trader. We tell that to all of our recruits during the interview process. We are in the business of building star traders. And I loved hearing that consistently profitable trader wasn’t enough for this trader.
He understood there would be many stops along the way. But the advice I was about to give struck me as what he needed next in his trading career.
There was another idea I could have shared with him that has worked with other traders. But as I listened there was a best and better idea. Every trader is different. And where they are as a trader is unique. Their personality, cognitive ability, childhood, monetary status, and drive all differ. For example, this trader is diligent, respectful of firm capital, thoughtful, creative, and grounded. The advice needed to be directed for him.
I asked him what the next big trade PnL goal was for him. He said, “4k”.
So I said okay, let’s try a daily exercise that has worked very effectively for traders in the past in your position. We have been hiring, coaching, mentoring, training traders for our proprietary trading desk since 2005, so we have proven techniques to lean on. We developed this exercise in consultation with Dr. Steenbarger, who works closely with our traders. (See Ideas to spark real trading progress from the prop desk (an evening with Dr. Brett and Bella)
The trading exercise to improve your PnL
Here is the exercise.
At the end of each trading session, review for one trading opportunity, which you could have made 4k. Do a daily trade review, on how you would have captured 4k for this trading opportunity. In detail, review where you would have entered. And with how much size. And what your exit rules would have been. And what your risk would have been. Do this each trading session.
This should be a trade that you would take within your trading system. For example, don’t say you could have taken out $FB overnight and sold it up 6 points on the open, if this is outside your trading system. But perhaps a favorite technical analysis setup was present during a trading session and you caught the trade for $2000. And perhaps you could have doubled your size, stayed within your risk guidelines, and caught the trade for a 4k gain. If so, then review this trade in detail for this exercise.
There are many reasons why this exercise works. One of the first is you are already working with a successful trader. This is a trader who has edge. This is just a trader who needs to trade a bit bigger. But the most important reason this exercise works is because it gets the consistently profitable trader to think differently. To see himself differently.
The trader now has a clear vision of who he will become as a trader. He is now not the playing it safe consistently profitable trader. But rather now he is the responsible big game hunter. He is now a responsible big trader.
What many consistently profitable traders instinctively feel will lead to them trading bigger is to be get used to handling more stress and risk for each trade. This has not been my experience working with elite traders. Yes you have to take on more risk. But the amount of extra risk you must learn to withstand to double your profitability on your best trades is not 2xs. The best trades tend to work right away. The best trade hit you right between the eyes. The best trades come to you. The best trades show you confirmation that they will work. For the best trades, you can be super aggressive and not feel much trading heat.
There will be days when there will be no such big trade opportunities, but those will be rare for active traders. If so, then skip this exercise on those days.
This diligent trader shared that he was excited to begin this exercise. However, he shared that he expressed concern about losing his consistency. This did not surprise me. This was a trader super respectful of firm capital. And with a personality that preferred steady progress. I shared that my initial gut reaction to his 4k goal was it was too large of a leap. I had assumed he would next shoot for 3k and said as much to him. I told him it was up to him as to whether to shoot for 3k or 4k with a next big trade and that there were no wrong answers. And that he would know best which would work best for him.
The next day this trader sent me his first review working with purpose to trade bigger. Feel free to use it as an example to do this exercise for your own trading.
Trader review example: 3k $ACB – Parabolic Short Trade (Backside short)
I was open to this play today but I thought this might have needed one more parabolic day. I was hoping for one more parabolic day. Similar setups in $APRN and $BYND have had one more up day and then a large gap. Because of this, I was less aggressive at the START of the setup when I saw the failure at the open and observed the “large opportunity trade” begin to play out. So much of the ability to get MORE size is contingent on the onset of the move — in order to control risk-reward. In the moment, I did a good job identifying that it was happening NOW and adjusting. getting involved and building from there. But I only made 600 on this trade today. I should have made much more than this.
- The “floater” (failure at the open to push higher and quick and hard failure). This is the pattern that grabbed my attention. When I am stalking a play like this with urgency, I will have my hands on the keys and short this pattern when I see it on the tape. In this case, I was open to it not being the day, so, instead, this pattern grabbed my attention and urged me to stalk an entry. ACB gapped above the previous day’s range but when it opened, it was inside the range and had rejected the first up move.
Start selling the first pop within the 1-minute candle when it slows and shows heaviness on the tape. These sales were around 18.50. The high to trade against at this point was 19.25. That’s 75 cents of risk. This is tier 1 so I want to be risking 400 dollars here. That is 500 shares. I will scalp some of this because I am getting a feel and I will use the momentum. It trades down to 17 where I cover half on momentum and look to re-short the next setup. That’s 375 booked and 250 shares left. Now where can it set up even better with more confirmation?
- The “bank shot” (first 1-minute bar pullback to VWAP within an opening drive). The pop failed at 17.80 and couldn’t touch VWAP. I had to really see the turn here to add because it didn’t retrace much. This was a sign of weakness. This is where I got most of my size today. This is where I want to build back into the shares I covered on the turn, and then double my size for momentum when I know it’s working. Today, I only worked into 500 shares here. This is where I need to get 1000 with 2 tiered stops– 1 stop above 18.50 for the 250 I add back plus the original 250, and when the turn is confirmed and I add the 500 momentum shares, this stop gets moved to 17.80 and the 500 momentum shares are traded tighter against 17.50ish and based on what I see on the tape. So, in this case, I have 500 with an average of around 18 with a stop above 17.80, and 500 on momentum from around 17 with a stop at 17.50sih. I have built 1000 shares risking around break even on the trade when considering the cash flow I made from the first pattern.
I cover the 500 momentum lots at 16.40. This is 300 cash flow. I cover the rest at 15.50 when the tape changes This books 1250 for the swing.
That is 375 + 300 + 1250 = 1,925
- The “fadeaway” (midday shallow retracement that holds below VWAP). The size on this setup is always contingent on the size I had on the initial setup and how much of my profits I am willing to risk. I could have stalked this closer and started shorting on the double top around 11am. Today I started shorting 50 cents lower when it confirmed the breakdown around 11:45. This was still a good trade. But I was risking with a wider stop and was working with less profit, so I only had 100 share feelers. If I put 500 back on at 16.50 and risk against 16.80 (risk 150). I would be covering at 14.50. That’s 1000 profit. That’s the way to do it, and it’s important to me to trade the morning setup with enough size in order to put size back on in this setup. I do not want to invert the risk-reward on a slower trade such as this midday setup.
1,925 + 1000 = 2,925
In a way, trading this correctly, I am risking an initial 400 dollars, and then open profit on the next setup, and then 150 of 2k booked on the afternoon setup, all to make 3k. Granted, this is trading it perfectly, and it rarely ever goes perfectly, but I can be risking even more here, so this is encouraging.
That is a good trade.
This exercise is interesting to me already, because it is showing me that with just a little more size/risk and a very good job with adds and dynamic stops, that I can make much much more.
Getting in early, initiating with enough size, and adding momentum lots, all in the opening drive, are what put me in a good position to make 3k in this trade. (end)
The chart of the $ACB trade
Notice how this has helped this trader already. In his own words: “This exercise is interesting to me already, because it is showing me that with just a little more size/risk and a very good job with adds and dynamic stops, that I can make much much more.”
Yes this exercise gets you to start thinking like a bigger trader. This idea gets you to see yourself making those types of trades. You are literally changing as a trader. The next step is just to do in real-time what you already have proven to yourself in review that you can do. You can be better. You can be that big trader. This trader can make that 3k trade.
If this trader succeeds with his 3k goal, then we will set a higher goal. If he hits that higher goal, then we will set an even higher goal. We will rinse and repeat on the way to him become a star trader.
I am rooting like heck for this trader to one day earn his Black Shirt.
If you are a consistently profitable trader, then determine the best next big trade PnL for you.
If you are not consistently profitable yet, then focus first on become a Consistently Profitable Trader. I offer a blueprint in this video How to Become a Consistently Profitable Trader.
Be responsible and realistic.
After each trading session, review for a trade that could have resulted in that PnL goal within your trading system.
When you do hit that PnL goal, set a new next big trade PnL best for you.
Shoot to become a Black Shirt trader.
Mike Bellafiore is the Co-Founder of SMB Capital, a proprietary trading firm located in midtown Manhattan, and SMB Training- its trader education division. SMB Training offers trading courses for stocks, options, and futures. He is also the author of the trading classic One Good Trade and The PlayBook.
*no relevant positions