November 2020 was the second best month in our firm’s trading history (founded in 2005). During a firm call with our partners, we were all searching for the right word(s) to describe our performance in November. Finally, I chimed in with “amazing”. Another partner quickly agreed and said “yes it was…. AMAZING!” As like for traders, it is important for a firm to study what is working when we are trading well to sustain and even improve our performance. As I review what drove our amazing performance, there are essential lessons and ideas for all traders to help you improve.
What drove our “amazing” performance:
1. Collaboration
It is one thing to encourage traders to work together and share ideas. It is another to offer a concrete way for traders to do so. And yet it is even another for those concrete suggestions to add significant PnL to traders. Traders collaborated to add serious PnL to their trading. Simply, they opened up joint accounts with other firm traders and traded consensus ideas together. These consensus ideas were better than each of the trader’s individual ideas.
Watch: 3 Prop Traders Present How They United to Make their Most Profitable Trade
2. Stress Free Trading
Traders actively sought to avoid trading that caused large drawdowns. Many may think that elite traders learn to take more heat than junior traders and this is what leads them to larger profits. We are seeing our traders working actively to lower their stress while trading, drawing down less, and waiting for entries and setups that will not cause excessive stress. They are making more, by risking less, and feeling less stress.
3. Networking is a trading skill
2 junior traders made monthly personal bests, and put up near 150k each, by using their superior networking skills. They have developed relationships at the firm that has manifested into shared trades, helping them break out as traders. Since joining the desk, they have repeatedly and consistently reached out to other traders. They saw the benefits of those efforts this month by working with the right traders for them. These were not the first traders they approached with whom to work. They were the right traders, for them, with whom to work.
4. There is always someone bigger and better than you
One trader on our desk made north of 4 million during the month of November. What is not widely known is that he has been reaching out to a trader at the firm who made much much more. And that is true of all of the biggest producers. Another trader who made just south of 2 million for the month, jumped on a call and traded the open with two other elite traders who trade with more size than him. One of those other traders on the call noticed a 1.5 million opportunity in a trade, blowing the mind of this trader, who never would have seen such a large possibility absent this call.
5. Not every trading team is created equal
The trader team on our desk that performed the best, from top to bottom, is the group that is most grateful for their other team members. Each team member is bringing value to the other team members. Each trader knows their PnL would be much less without their team members. I was on a call with a trader from this team, a former retail trader, and asked him to estimate how much more he made being on his team. I quickly recognized this would be hard to quantify so I jumped in with: “Is it worth 200 percent to your PnL?” This trader quickly scoffed at my estimate and corrected, “Oh no Bella, it is much more.”
6. Stock selection
As we teach in SMB DNA, and I have written, “you are only as good as the stock you trade.”
The EV sector was the standout sector for the month of November. During a monthly review at the start of November one junior trader shared that he was going to focus on trading the market, as this is what he did best. The senior trader on the team quickly challenged this trader for restricting his trading career to market trading. Dr. Steenbarger, the firm’s invaluable trading coach, advised the trader to take advantage of the opportunities the best traders were crushing. And not to limit his opportunities in a market bursting with opportunity.
Succinctly, we were in the right stocks with the most opportunity.
7. Not guts no glory
Traders stalked special trading opportunities, and when they spotted their trades, they attacked with huge size. Traders recognized risk needed to be taken with these special trading opportunities and they were certain to take these trades with large size. Too little risk in your A+ trades is too risky. Again, they did this without taking excessive heat on their trades and suffering painful drawing down. But they were certain to place big bets when necessary.
8. The Market Opportunity
We cannot explain these amazing results without acknowledging the extraordinary trading opportunity this month. And it is true that many new traders, upper middle class traders, and elite traders at the firm made monthly personal bests. Simply, there was across the firm success. However, traders have been working hard on their trading games daily, weekly, monthly, over in some cases years, to produce these results.
A trading colleague shared a passage from Chop Wood, Carry Water that best explains these results:
“Akira-Sensei, I am getting better and better each week. How long will it take for me to become a samurai archer now?”
Akira smiled, and told him it would take 10 years.
John was furious. “Ten years? Maybe if I didn’t have to spend so much time chopping wood and carrying water then I would be able to reach my goal much faster!”
Akira replied, “if you don’t chop wood and carry water, then it will take you twenty years to become a samurai archer”. Then he turned and walked away.
Even given the enormous opportunity in this market, the performance of many traders was nothing short of “amazing”.
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].
