Questions on Consistency and Scalability

Steve-

Thank you for a great presentation on Tesla last week. I subscribed to the blog for a few months now, but your class was my first real exposure to SMB. It is refreshing to come across a professional trader, not just a professional instructor.

I have a couple big picture follow-up questions from the class I hope you will clarify:

You mentioned you take about 40 trades per day roughly. Do you mean 40 distinct trades with multiple entries/exits. Or is it closer to about 5-10 trade setups and multiple entry/exits increase the trade total to 40 or so?

You mentioned that consistency and scalability are two major criteria the firm considers when evaluating traders. What is consistent and scalable to you? I understand that a trader that waits for the perfect moment and loads up based on a pattern on the one minute chart with a few hundred shares to scalp is not what you are want to see. But I don’t understand what it is that you do want to see. Can you provide some examples or expand on your comment?

Thanks again for a great presentation, and I hope to hear back from you soon.

Regards,

Frankie

Frankie,

Thanks for attending the webinar and I am glad you were able to derive some value from it. To answer your first question regarding number of trades you are spot on that it is 5-10 trade setups each day but there could be 40 executions when counting total position management. I like to scale in/out of most of my positions. With the largest size being at prices where I view the risk/reward highest and the smallest size when risk/reward is lowest. An important point to remember with respect to intra-day trading US markets is that since the majority of volume is done by HFT, you want to be mindful to not over trade and when scaling in and out of positions, that you have bigger picture price targets in mind.

In terms of the level of consistency we look for in traders to back financially we like to see 70+% positive trading days each month. The nature of intra-day trading is you get a lot of reps each day so most days should be positive. This number can move somewhat higher or lower depending on the ratio of size of winning days to losing days. If a trader’s best day each month is 4X their biggest losing day they can get away with a lower “daily win rate”. But if their losing days are comparable to their winning days they will need a much higher daily win rate to earn a living trading.

Scalability goes hand in hand with identifying bigger picture trends intra-day and trading stocks with good liquidity. If you are trading stocks that trade 100K shares a day most likely you aren’t scalable unless your setups occur across a large number of low volume stocks each day. It is far more likely if you are trading something In Play like TEX today that traded 15mln shares and trended higher for two points that your trading can be scaled. With this higher level of liquidity a novice trader can move from trading 100s of shares when they begin to many 1000s as they gain confidence in their playbook.

Steve