One of the greatest hurdles a new trader faces is that of consistency. Consistency on SMB’s desk is defined as being profitable a minimum of 80 percent of the trading days each month. The majority of our desk achieved this level of consistency in the month of August. This was mainly a result of the opportunities in the leveraged financial ETFs and the crazy volatility we saw in AIG. These opportunities played into the strengths of many of our better young traders. I would describe this group as risk averse momentum scalp traders. They love it when a stock is In Play from the Open straight into the Close. They will risk 10-20 cents to make 50 cents to a dollar all day.
The question is what happens when market conditions get back to “normal”? What happens when a large part of your P&L each day will be determined to your morning preparation? What happens when you notice that for three consecutive days you’re not up over $1,000 at 9:35? What happens if the ETFs are no longer offering 2-3 points of upside in the first two minutes of the trading day? Will you make sure that you are doing all of the little things to ensure that you will be net positive for the day?
Here is a list of things that young traders should do daily to ensure they hit that 80% profitability threshold on a monthly basis:
1) Pay close attention to which trading setups are working best each trading day. If you notice that certain setups are no longer offering an above average risk/reward then eliminate those trades ASAP.
2) Trade the stocks that are most In Play for the day. If you don’t have a system to identify the most likely candidates prior to the market Open then during the day hone in on stocks that are trading with high relative volume and have moved a good amount off of their opening print. Also, follow the recommended stream on StockTwits for potential opportunities.
3) Make sure that your sizing is consistent. This means that your trade size should match the amount of money that you are willing to risk on each trade. Too often traders are very inconsistent with their sizing and this leads to inconsistent results.
4) Technically this isn’t something that you can do “daily” but it is really important for young traders to grasp this concept. You must follow a negative day with a positive one! If you have been trading for more than eight months then there should be a greater than 90% chance that you follow up a negative day with a positive one. Those who have the competitiveness to do this job in the long run make sure to follow up a losing day with a winner!
5) Protect the lead. In other words, if you get up quickly on the Open then make sure you keep at least 70% of that money for the day. This doesn’t mean you should stop trading or watching the market but you should never allow a good Open to become a negative day. There are two reasons for this practice. One, you will have plenty of Opens where you will have negative P&L and will expend a great deal of mental energy battling back from your early deficit. Don’t allow a day that starts positive to be one where you need to dip into finite mental resources to ensure that you finish positive.
There are probably a dozen other things you can do to make sure you achieve a high level of consistency as an intraday trader. But the above list should serve as a good starting point.
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6 Comments on “In Search of Consistency”
good post.
you allow various styles at ur shop like multi day swings vs. the intraday style most of your posts reference?
good post.
you allow various styles at ur shop like multi day swings vs. the intraday style most of your posts reference?
I disagree with the premise that a trader’s goal should be to be profitable on 80% of days. I think that’s silly. If you lose $1000, lose $1000, lose $1000, lose $1000, make $20000. You made 16k over 5 days with a 20% win rate, I’ll take that over the opposite scenario and an 80% win rate every day. Obviously, I chose an extreme example, but it’s all about the relative size of winning days and losing days. It’s the same thing as saying you need to be right on 80% of your trades. It’s all about the percentage of winners*the size of those winners being bigger than percentage of losers*their size. I also think that the idea of keeping 70% of your profits in the bank if you have a good open means that you will end up being too conservative in the midday. If you have a good open and you have a good feel for the market or a particular stock, that’s the time to take a larger risk and push for bigger profits even if that means you might give up your early gains. The focus on being positive or negative on any given day is simply giving up some math edge to coddle your ego.
I disagree with the premise that a trader’s goal should be to be profitable on 80% of days. I think that’s silly. If you lose $1000, lose $1000, lose $1000, lose $1000, make $20000. You made 16k over 5 days with a 20% win rate, I’ll take that over the opposite scenario and an 80% win rate every day. Obviously, I chose an extreme example, but it’s all about the relative size of winning days and losing days. It’s the same thing as saying you need to be right on 80% of your trades. It’s all about the percentage of winners*the size of those winners being bigger than percentage of losers*their size. I also think that the idea of keeping 70% of your profits in the bank if you have a good open means that you will end up being too conservative in the midday. If you have a good open and you have a good feel for the market or a particular stock, that’s the time to take a larger risk and push for bigger profits even if that means you might give up your early gains. The focus on being positive or negative on any given day is simply giving up some math edge to coddle your ego.
Jesse,
Of the hundreds of professional intraday traders I have know during my 13 year career I’m not aware of any who were profitable less the 80% of the trading days each month.
But I do know many intraday traders with win rates far below 50% on individual trades but they still finish the day positive over 80% of the time. This is done with excellent risk management and executing a high number of trades each day that leads to a positive expectancy.
Not sure if you are a professional trader or attempting to become one but the above is the reality of what I have seen over the past decade plus.
Steve
Pete,
The main focus of our shop is making money intraday. We believe this is a necessary foundation for all short term traders. As our traders gain more experience and build their banks they can employ different strategies that involve overnight risk.
steve