I’ve worked over a period of years with two proprietary trading firms: Kingstree in Chicago and SMB Capital/Kershner Trading in New York. The advantage of working inside such trading firms is that I get to see what is really going on and, most important, I get to see the P/L of each trader. Putting these experiences together, I can identify two best practices that have been associated with success among developing traders:
1) A rigorous planning and review process – Winning basketball and football teams prepare intensively for each opponent. They stay in shape with drills, review game film to find weaknesses in the opponent and correct their own weaknesses, and practice plays over and over again before game day. Similarly, successful developing traders review in detail what happened over the past day and week, plan for potential opportunity, and track their performance so that they are actively working on goals that enable them to get better. One practice I’ve seen that works especially well is recording the market day and then replaying the video, stopping at key points, and seeing–frame by frame–how opportunity set up. Think of how many more reps those traders are getting than the average noob. SMB provides a nice example of a “monster trade review“, in which the trader studies ways in which good trades could have become great trades. Note how that reinforces–every single day–the idea of becoming a great trader.
2) Developing multiple ways to win – To use Mike Bellafiore’s phrase, successful traders work on developing a playbook outlining patterns associated with opportunity and how those set up in real time. Like a good football team, the successful trader has a deep playbook that allows for an adaptation to many different conditions. So, for example, any football team has a diverse set of running plays and passing plays that can exploit a wide range of defensive setups, field conditions, and game clock constraints. Knowing which plays to run under particular situations is a key strength of any coach and quarterback. Successful traders have studied opportunities in various kinds of markets and that set up at various times of day and over various time frames. That means that, like the star quarterback, they can run the right plays given the conditions they face. Successful traders are anything but one-trick ponies.
As I emphasized in the trading performance book, success in any performance domain is a function of talents we’re born with and skills we cultivate through deliberate practice. The traders I see succeeding are ones spending an unusual amount of time working on their trading outside of market hours. They are getting feedback from coaches, mentors, and peer traders, and they keep score of their trading with detailed statistics. The great traders love markets, love learning, and love growing. To use Ellen Winner’s phrase, they display a “rage to master“. It’s not P/L that motivates them. It’s the process of mastering a field that speaks to their greatest talents and interests–and that is what brings the P/L.