Questions from a New Trader

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We are at the office going over our trading on this Saturday. Steve, GMan, and I are reviewing some of the work of our new traders. It is a good sign for these new traders who acknowledge that they need some help and are working to get better. I know at the start of my trading career that I should have done more of stuff like this. One of our new traders sent me a few questions this morning and I responded. I thought his comments about some of his trading made perfect sense to him and other new traders. Unfortunately his conclusions were incorrect. Trading is a unique activity, and short-term trading is a niche. There are thousands of little things that you must learn to improve your trading numbers at the end of the month. There are just some things that don’t work and hurt your performance. On their face they may seem¬†counter-intuitive. But again this is a game to which many do not have the appropriate experience. This is a game where sometimes what may make sense on its surface just doesn’t for short-term trading. And as a mentor it’s my job to point out these little things.

Below is an exchange I had with one of our new traders. And I thought it would be instructive to many. I certainly learned more about this trader and perhaps why he was not doing as well as he could. But I liked his fight. And I loved that he was thinking through his trading. My response is in bold.

If my exit price is reached and I know that other SMB’ers are trying to enter the same position as me, should I get out just for the sake of following my exit plan when other profitable traders view the stock as a long and I am already long? One of the advantages of being at SMB is the flow of communication on the desk, and along those line I try never to take the opposite side of someone like yourself in a trade.

Yes. Your goal is to make One Good Trade and not One Profitable Trade. Always make One Good Trade. And One Good Trade mandates that if your stock trades against your exit price then you must EXIT.

When we enter a trader we don’t know what’s going to happen to the broader market, in the inside market, other sector, stocks, etc. So I’m not convinced that hitting out 100% of the time when your exit price is reached is the best route.There are times when it is clearly the best route, such as being long directly in front of support and a bid decrements, but other times it is not as clear cut. For example, if other sector stocks are ticking up, the SPYs are ticking up, the inside market looks good, etc, I usually give plays like this some room.

I always exit if my exit for if the stock trades against me is reached. Always. Now 1) I might quickly get back in if I notice a new One Good Trade because the Inside Mkt, SP#F, the Prints indicate strength. 2) My exit plan may be more detailed than yours at the beginning of your trading career. For example, I may set an exit price of below a level, but if the Inside MKT, prints, and SP#F are strong then I must see a held offer below my level or a decent bid getting hit before I exit. But this is very rare. Usually I just hit out, gather information and reevaluate. ¬†And if my stock is showing new signs of strength then I create a new One Good Trade. I don’t want to be in a stock that is ticking against me and hoping, wishing, and praying that it will turn around. I want to be in a stock that is ticking for me and showing me my position is working.

I hope everyone enjoys their weekend. Should be interesting to trade the market reaction to the bailout plan or lack thereof.

You can be better tomorrow than you are today!

Mike Bellafiore

One Good Trade

The PlayBook

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