How you can develop a trading hot streak

At SMB, our prop firm, we think a great deal about the best way to train new traders.  Our core business is training new traders into consistently profitable and then elite traders.  Since 2005, this has been our focus for our work.

New traders go through an extensive training program before they ever trade firm capital.  We would never allow them access to firm capital unless they been properly trained.

We have trained traders differently since 2005, trying different approaches.  We have learned through experience that there is an optimal approach, for our firm, to develop new traders.  An important component of that optimal approach is to expose traders to many different trading strategies with edge, strategies that are being traded on our desk daily by profitable firm traders.  Then after this exposure traders determine their trading niche- the strategies best for them.

We do not force traders to focus on a few setups.  We do not force traders to focus on a certain type of trading.  Traders are exposed to different types of trading, varying setups, and distinct teams with unique ways to express trades.  We let the traders choose a niche best for them from a broad array of setups, styles, and trade expression.

It has been our experience that all traders are different.  Even our top traders are very different from each other.  Traders have different cognitive and psychological makeups.  They have different interests.  They have unique talents that are best suited for a personal style of trading.

When traders have chosen their niche, then they express these setups in real-time, carefully measuring their results.  For their favorite trades, they PlayBook the setups.  Breaking down these most successful trades into succinct variables.  Traders can then look for similar setups that they trade best going forward.  They know what to look for.

And again they measure their trading results for trades in their PlayBook.  These trading stats inform them what they trade best.  They understand from past results what their A+ setups are.  From here, we encourage traders to trade these setups with more size and more often.  We encourage them to exploit these setups.

First traders explore.  Then traders exploit.  First traders explore their edge.  Then traders exploit their edge.

That is why I was delighted and encouraged to read a recent article, Hot Streaks Do Not Happen in Your Career by Accident, sent to us by Dr. Jonathan Katz, who coaches Austin firm traders. The article highlights the extensive research from Northwestern University economist Dashun Wang on career successes- career hot streaks.  The conclusion from this research is that career hot streaks follow a period after you explore and then exploit.  You explore for your best career opportunity and then exploit what you have learned, by seizing the best opportunity for you when it arises for you.

This tweet below quotes from the article,

Explore with your trading.  Explore different setups, styles, time frames, and ways to express your trades.  And then exploit what you have learned by seizing on the trading opportunities and periods of trading best for you.  The research and our experience at SMB, shows that this may lead to your trading hot streak.

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]