One Good Trade

1. Proprietary Trading: High-Stakes Game of Skill and Discipline

Proprietary trading firms do somewhere between 50 and 70 percent of all the equity volume on the Street on any given day.

High-stakes, high-reward environment. Proprietary trading firms, or "prop firms," are where traders use the firm's capital to make speculative trades in various financial instruments. Unlike traditional investment banks or hedge funds, prop traders don't have clients and eat what they kill – their profits come solely from their trading activities.

Key characteristics of successful prop traders:

• Disciplined risk management
• Ability to adapt to changing market conditions
• Strong pattern recognition skills
• Emotional control under pressure
• Continuous skill development and learning

The prop trading world is highly competitive, with firms often recruiting top talent from prestigious universities and athletic programs. However, academic pedigree alone doesn't guarantee success – the market demands a unique blend of analytical skills, psychological fortitude, and the ability to make split-second decisions under intense pressure.

2. One Good Trade: Focus on Process, Not Results

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.

Process over outcome. The concept of "One Good Trade" emphasizes focusing on the quality of your decision-making process rather than the immediate result of a single trade. This mindset shift is crucial for long-term success in trading.

Key elements of One Good Trade:

1. Proper preparation
2. Hard work
3. Patience
4. A detailed plan before every trade
5. Discipline
6. Communication
7. Replaying important trades

By consistently executing trades that follow these principles, traders build a foundation for sustainable profitability. This approach helps manage the psychological challenges of trading, reducing the impact of short-term volatility on a trader's decision-making and emotional state.

3. Stocks In Play: The Foundation of Profitable Trading

You are only as good as the stocks that you trade.

Identifying opportunity. Stocks In Play are securities that offer the best trading opportunities on a given day. These stocks typically have:

• Fresh news or catalysts
• Significant price movement (up or down 3%+ pre-market)
• High volume (over 1 million shares traded)
• Potential for 3+ point intraday moves
• Real order flow and important intraday levels

Trading Stocks In Play allows traders to:

• Be more efficient with capital
• Find more excellent risk/reward opportunities
• Execute ideas with greater consistency
• Combat algorithmic trading programs
• Develop trading skills faster

By focusing on Stocks In Play, traders increase their chances of profitability and reduce time wasted on less opportune securities. This approach requires constant market awareness and the ability to quickly adapt to changing conditions throughout the trading day.

4. Reading the Tape: Essential Skill for Intraday Traders

Reading the Tape is a skill that enables the intraday trader to predict more times than not whether a stock will trade higher or lower from a given price based on just examining the bids, offers, and prints.

Decoding market dynamics. Reading the Tape is the ability to interpret real-time trading data to predict short-term price movements. This skill goes beyond traditional chart analysis, allowing traders to make split-second decisions based on order flow and market dynamics.

Key aspects of Reading the Tape:

• Identifying significant buyers and sellers
• Recognizing held bids and offers
• Spotting unusual volume patterns
• Interpreting the speed and size of trades

Developing this skill requires practice and experience, but it can provide a significant edge in intraday trading. Traders who master Reading the Tape can often anticipate price movements before they appear on charts, allowing for better entry and exit points and improved risk management.

5. Scoring: Maximize Profits Through Strategic Adjustments

Scoring, simply put, is the skill of maximizing your P&L.

Optimizing performance. Scoring involves making strategic adjustments to your trading approach to maximize profitability. This includes:

• Setting appropriate intraday loss limits
• Adjusting trading style based on time of day
• Maintaining consistency in profitable strategies
• Proper position sizing
• Developing and refining if-then statements for various scenarios

Key strategies for effective scoring:

• Focus on your best-performing setups
• Incrementally increase size on high-confidence trades
• Reduce exposure during less profitable time periods
• Continuously analyze and improve your trading statistics

By focusing on scoring, traders can turn good performance into great performance, squeezing more profit out of their successful strategies while minimizing losses on weaker trades.

6. Trader Education: Continuous Learning and Adaptation

Trading is about skill development and discipline and not understanding dark matter.

Never-ending improvement. Successful traders commit to a lifelong process of education and adaptation. This involves:

• Regular review of trading performance (e.g., video analysis)
• Staying updated on market trends and new trading technologies
• Developing mental toughness through psychology training
• Learning from mentors and peer traders
• Practicing in simulated environments before risking real capital

Effective trader education programs often include:

• Structured training curriculums
• One-on-one mentoring
• Group discussions and idea sharing
• Statistical analysis of trading performance
• Continuous feedback and performance review

The most successful traders and prop firms invest heavily in education and skill development, recognizing that the markets are constantly evolving and traders must evolve with them.

7. The Best Teacher: Mentorship Beyond Trading Prowess

Many of the great coaches were competent players in their own right, but not all-stars. They knew the game, but their passion was for teaching and developing players.

Teaching talent trumps trading talent. The best trading mentors are not necessarily the most profitable traders. Instead, they possess a unique set of skills that make them effective educators:

• Clear communication of complex concepts
• Patience with developing traders
• Ability to tailor teaching methods to individual learning styles
• Passion for trader development
• Skill in breaking down the trading process into learnable components

Characteristics of great trading mentors:

• Never satisfied with the status quo
• Highly motivated to see others succeed
• Able to build on a firm foundation of trading basics
• Looks inward for continuous self-improvement
• Practices patience while knowing when to be tough

The best trading education comes from mentors who can not only demonstrate successful trading but can effectively transfer their knowledge and experience to others. This often requires a different skill set than what makes a great individual trader.

Last updated: July 31, 2024