❧Trading is about skill development and discipline. Unfortunately, too many people think trading is just about making predictions, loading up, and being “the man” by holding stocks.
❧Being a consistently profitable trader is about doing the thousand little things every day—like proper preparation—that impact your P/L.
❧A great trader is an elite performer. Elite performers spend every day trying to improve. Every day we trade is an opportunity to learn from the market. My mistakes and those of other prop traders are just gifts from the market for us to improve, and they will be shared so you can learn.
❧Some proprietary firms have an interest in obtaining private research from institutional banks like Goldman Sachs and they can pay for access to it. We have access to some of this data but it does not make a difference.
❧The market demands that a trader follows all of her rules, every day, and every moment. Many just cannot thrive in this unbending universe.
❧Traders learn more about themselves in a year of trading than many learn in their entire adult lives.
❧Positivity is a skill.
❧It always comes back to the fundamentals: patience, discipline, hard work, a detailed plan.
❧If you are too comfortable in a trade then you probably do not have enough size.
❧As traders, we should spend each day stepping outside of our comfort zone so we improve.
❧You should never lose more than half of your median intraday gains.
❧It’s about doing the little things every single day and making yourself better, and that’s my goal. My goal in this part of my life is to get better every day. If I do something every day to make myself better, I know eventually my P&L is going to show.
❧Trading is not about being right. Trading is a game of math. It is about finding setups that offer you a good risk/reward and pulling the trigger. Thirty-40 percent of these trades will result in a loss.
❧Do not judge a trade based upon its results! A profitable trade may or may not have been a good trade, what I call One Good Trade. A loser may have been One Good Trade. If your fundamentals for a trade are sound, then that is One Good Trade. Consistently profitable traders obsess about making One Good Trade and not money. Your job is to make One Good Trade and then One Good Trade and then One Good trade.
❧I am not trying to make money as a trader. My focus is on “doing the right thing.” All I can ask for is excellent risk/reward opportunities. And then I execute. Being good at my job requires an obsession to my trading fundamentals. Money is just the by-product of me executing fundamentally solid trades.
❧At SMB, we ask our traders to follow a set of seven fundamentals before entering every trade. Our fundamentals are:
A detailed plan before every trade
Replaying important trades
If they follow all of these tenets in their trading from start to finish, then they have made One Good Trade. And this is what we do. Or certainly try to do. And we do it over and over again. We make One Good Trade, and then One Good Trade, and then One Good Trade.
❧The day does not end until the bell rings.
❧As intraday traders, our margin of error is very small. Shouldn’t we put ourselves in the best position to compete against our competition by preparing properly? With these kinds of odds against us, failing to prepare properly is preparing to fail.
❧Good traders understand that they will not be in every move. They wait for setups with which they are comfortable and confident. A strong stock that has moved well above a good risk/reward entry is left to run without them.
❧If you just watch your screens patiently all day, plays will emerge. Good risk/reward setups will appear. Consistently profitable traders do not force trades. They embrace the important part of their job—just waiting for a setup to develop.
❧You must have a backup plan for every situation. And you must do this before you enter your every trade.
❧Simply put, you have no chance, trading any market, at any period, with any stock, in any country, making money as a trader without discipline … Discipline is executing your plan as you set out to do it, without altering it in the middle. Discipline is executing your detailed plan every time.
❧Do not judge your trading system based upon one trade. Executing your plan, being disciplined, will lead to long-term success.
❧One way to keep a better sense of discipline is through vigorous exercise. A healthy body leads to a healthier, dare I say, more disciplined mind.
❧Learn to judge your trades based on how closely you followed your trading fundamentals.
❧Contrary to popular belief, trading is a craft. Like an artisan who develops a craft over a lifetime, it requires a discipline to be exercised daily. Just to get started, it takes 10 hours of work every day for months and maybe years to become a consistently profitable trader.
❧As you progress, you will get better at the plays that you are taught or learn. You will learn to trade with more size incrementally. You may stumble across a new play here and there. But almost all of the money that you make as a new trader should be from statistically measured, basic trading plays.
❧Spend your first three years just mastering basic trading plays and pushing yourself every day to get better. Save the new strategies for after you have learned how to trade.
❧At the start of your trading, you should trade with small size and with one stock. You should not increase your tier size until you are positive 7/10 trading days. You should set a small max loss when you begin. You should be limited in your buying power.
❧Do yourself a favor, and cover up your P/L. It is not significant when you first begin trading. On most advanced trading platforms, there is an option offered to etch out your P/L. If yours doesn’t, then go old school and use some masking tape. Seriously, go find some masking tape and slap in on your trading platform. Your goal is to develop skills first, make money second. You have to focus on getting better every day, day after day.
❧Trading is not a 100-hour a week job. At least, it isn’t for me. It certainly shouldn’t be. Trading is as close to being a professional athlete as I can think of. You must be well rested. Your performance changes from day to day. Trading—like sports—is performance based. Traders who trade well, just like athletes who play well, are paid more than they deserve. A trader must recharge after the trading day. You must be fresh and alert for the next session. Save the 100-hour work weeks for the investment bankers, lawyers, and analysts (and partners of trading firms like me).
❧Traders can do the following to simulate trading:
Keep a detailed Trading Journal.
Replay trades in your head like old school traders. Talk trading with other traders.
Use video review individually, and as a group.
Practice on a trading simulator.
❧As a developing trader, you must note what works for you and continue to do more of this. But you also must eliminate your mistakes. At the end of every day in your trading journal you must make a list of things that do not work for you. And then eliminate them.
❧No matter what your skill level, go get your trading journal and place it next to your trading station. Draw a line down the middle of your trading journal. On the left, keep a list of the things that do not work for you. Trading setups that do not work. Premarket routines that are not effective. Trading rules that are not helpful. On the right, keep track of what works for you. Do more of what is on the right-hand side and don’t do any of what is on the left-hand side.
❧The Market has rules. Experienced prop traders have spent many hours, days, months, and years learning these rules, at times very painfully. I’ve spoken endlessly to new traders about what happens when one disobeys these rules, i.e., Mother Market reaches into your pocket and takes what is hers. And she doesn’t give it back.
❧You bought the stock because it was holding a support level. This is the reason why you entered the trade. When the support level drops, your reason for being in the trade no longer exists and you must exit. You cannot be sure that the stock will go down, but that is irrelevant. We play the percentages. We make trades where our win rate is 60-70 percent with a downside of one and an upside of five. When the stock does not act like we expect, then we exit and start over. And we are not in the business of losing money to prove that we were right. So when the stock drops below the support level, you have no other choice but to hit out of the stock. Holding a stock below support is now gambling. And that is not what we do here.
❧Your reward after all this training time and underpaid apprenticeship is the trading skills to trade profitably in any market, from anywhere, and for the rest of your trading career. Essentially, this is a license to print money. But it takes time and experience to develop these skills.
❧A good training program will only place you in setups where you can succeed. You will trade the easiest setups when you start. For example, for the first week live, new traders might only trade support and resistance levels. The next week, new traders then shift to breakout trades exclusively. The next week, they focus on momentum trades. After that, they focus on consolidation plays. But they start with one trade at a time.
❧I cannot express to you how unimportant the results are from your first six months of trading.
❧Becoming a consistently profitable trader just might be the hardest thing you will ever do in your life. Respect the process. You are not entitled to make it. You are entitled to work very hard for 8-12 months, be trained well, and find out how good you can be.
❧Consistently profitable traders are interested in making good trades. They accept that they cannot control the results. And holding a position that is trading against them because they are most interested in being proven correct is bad trading. Your job is not to be correct. Your job is not to make money. At the best prop firms, a new trader is taught to just focus on making good trades.
❧If your confidence is low, you will most likely give in to the market’s bullying and take your loss.
❧You can train at the best prop firm in the country, but if you do not believe that you will succeed, then you will not. If you cannot visualize yourself as a successful trader, then you will never become one. If you never obtain the confidence that you will succeed, then you will not survive to enjoy the most opportunistic markets.
❧Trade with an open mind at all times. Expect the unexpected.
❧Your ability to make money consistently as intraday traders relies on your high daily win rate. If you ask any professional trader how many days they are net positive each month, they can give you that figure. It is between 80-90% for almost all successful traders.
❧I trade best on the Open, meaning I make the most money on the Open. My trading statistics confirm this. As such, I increase my size during this time and make more trades. The Open tends to last about an hour. My stats also show that during the Midday, I do the worst. So I lower my tier size and keep my stops tight. I only make trades that offer the best risk/reward during this period, and make fewer trades. Into the Close, stocks are more directional, so I stick with those that are trending up or down in the last hour of the trading day. I raise my tier size from the Midday, but not as high as on the Open.
❧For each of the trades that I make I develop if-then statements. For a Support and Resistance Trade, I have created if-then statements. Same with a Momentum Trade. And that is not all. For the many subsets of each trade, I have also created if-then statements. There is just not one type of Support and Resistance Trade. There are at least 10 variations. For a momentum trade, there are a series of probable possible ways that a stock may trade. I have predetermined how I will trade this setup and in each possible way. And then after I spot the momentum trade, I have a framework for execution.
❧To improve as a trader, you must determine which setups make the most sense to you! And then you must make more of them and with more size.
❧The cheetah, while the fastest animal on the African plain and can outrun any of the prey it feasts upon, always chooses to go for the young, weak, or sick. Once identified, he/she attacks with laser-guided focus and effectiveness. It is only then that the kill is most likely. That is the epitome of a professional trader.
❧Mentors will shout out important technical levels in the market, and will share when the market may turn. We often pull traders into our office and just tell them that they can make it. We build their confidence. A mentor demonstrates the professionalism required to be successful.
❧Consistently profitable traders constantly evaluate their trading system. They make adjustments every month, every day, and even intraday.
❧To last in this business you must reinvent yourself, tweak your profitable setups, and embrace the mindset of change.