Let’s start by talking about the shark tank. It all started with one of the traders – JP – calling himself a shark in some non-trading conversation. Unfortunately for him his mentee who sits next to him – RB – heard the silly comment and lost it. Over the next few days RB would just not let it go. Quickly every one around JP caught up to the joke and we kept on calling him the shark. JP went from this is really not funny with the shark comments to actually embracing the name over the next couple of trading days. Now every very well thought out trade that comes out of our 8 person area – the shark tank – is called a shark trade.

A shark trade is a trade in which you gather information, you trade into a position, you accumulate stock, you buy when it looks awful on the chart but great on tape. It is a trade that requires the person to be in for an extended period of time. It is a trade we put on in anticipation of a break. There is a lot that goes into the trade is what I am saying. These are the trades that make your day but not many traders are interested in being in because it is not an instantly rewarding / high flying triple leverage trade. It is a trade you have to be extra patient in.

To better amuse ourselves we now play the shark theme song as a way of alerting those in our desk that it is a play everyone should consider jumping in. We alert those in our desk of the trade while we are still “chumming” – while the trade is developing. It really makes up for some good laughs when you hear the song.
To be part of the shark tank you need a couple of things: 1. a good sense of humor 2. have a similar trading style 3. Believe and implement the risk management system we use. And it is the latter the topic I want to briefly talk about in this blog.

RB struggled for a couple of weeks. He was losing his mind. He was getting stopped out almost every day. But then he started to implement the risk management strategy I talk about all the time: Scratching 70-80% of your losing trades. His numbers improved 1000%. He went from getting crushed every day to now having barely any swings in his pnl.

The Shark Tank Risk Management System (STRMS) consists of always locking in some gains in any trade to cover your risk and letting the other 50-70% of the position get stopped out if necessary. This goes for any trade: a low/high probability scalp or a trade2hold (aka a shark trade). So if you make a trade with 300 shares in which you risk 2c in, and the trade goes 8c in your favor then you get out of 100 quickly. And then you let the other 200 shares do its thing – whether that is making 10c, 25c or more in them. If the trade never gets to your target and you get stopped out on the trade you actually end up making a whooping $4 on the trade ($8 gain on the first 100 and $4 loss on the 200).

Yes it minimizes the amount of money you make but it has a very powerful effect on your PnL. Namely it makes it that much harder for you to ever reach your stop out limit. It minimizes your risk to a great extend. It makes you scratch a trade in which you normally would have lost if it never got to your desired target. It adds consistency to your game.

I know RB has started to turn the corner in his trading. Implementing the STRMS has changed his numbers around..and dramatically. It can certainly help you as well.

Enjoy the rest of your weekend. I am off to find a last minute costume for tonight’s shenanigans. By the way, that all you eat sushi – all you can drink beer/sake for $30 is awesome. That is definitely a shark trade. Can’t remember the name of it but its on 11th and 1st ave. Delicious!