I am certain that there are a myriad of ways to describe how a novice trader moves from lack of expertise toward mastery. I would like to use the below as a framework to describe the progression of the traders on our desk. In Part II I will give an example of a specific stock that was In Play today and how various traders on the desk fared trading it based on the following criteria.

1) Learn the setups that work

We teach the basic setups that work intraday during the fourth and fifth week of our traders initial training. We have a bunch of core trading plays that we go through in great detail and our trainees spend time developing If/Then statements to attack each particular setup. When our trainees go live we will spend more time exposing them to bigger picture plays that contain within them various intraday plays that were covered during the initial training period.

So all of our traders have a basic understanding of the setups that work after their initial five weeks of training. This basic knowledge is sufficient for them to identify good trading opportunities. However, at this early stage of their career it is virtually impossible for them to make money because they don’t have enough experience to consistently do 2,3, and 4.

2) Execute a trade when the setup occurs

There is a psychological component that enters into pulling a trigger on the trade. Our traders are taught a system of “checks” that allows them to assess the risk/reward for any given trade they are considering. Depending on the individual traders level of aggressiveness there will always be the opportunity to say “I didn’t have enough checks in my favor” to place the trade. The other factors that may cause a trader not to pull the trigger are a lack of proper preparation or an inability to focus throughout the trading day.

If a trader is not properly prepared then they may miss a trade because they will not see the setup until the entry opportunity has passed. If a trader is unable to sustain focus throughout the day then they will miss the setups that don’t occur right on the Open or during the Close (coincidentally some of the best trading opportunities I saw today occurred around noon).

As traders on our desk get more screen time and see others in their peer group executing on the best setups they generally follow suit. Those who I have seen with the most potential are almost always properly prepared and willing to do the things necessary to stay focused during each part of the trading day.

3) Manage your position effectively

This is not something that can be learned in a short period of time. Newbies have almost zero ability to effectively manage their positions. That is why it is essential that they have a detailed trading plan prior to ever entering into a position. They lack the experience that is necessary to make adjustments to their positions on the fly and typically will be a “deer in headlights” if the setup doesn’t unfold in some idealized manner.

We spend a great deal of time during our TRSs (Trading Review Sessions), which are training classes where we watch tape of a trader’s live trading, discussing how to actively manage a position. The purpose of actively managing a position is to maximize potential gains and minimize risk while taking into account the nuances of the trading pattern of a particular stock.

A trader who has effectively developed their positioin management skills should be able to capture 50% or more profit per setup than someone who lacks these skills.

4) Understand when the play is over

A newbie will enter into a position and think the play is over either the moment they are stopped out for a loss or the moment they close out their position for a profit. Rarely do stocks move in a straight line from point A to point B. A more experienced trader will constantly be reevaluating the potential of a stock. They consider all of the possible scenarios where they would reenter if the risk/reward is favorable.

The trading setup that will be discussed in Part II involves a stock that has recently been very strong but today provided an excellent risk/reward short during the final three trading hours of trading today. I will go into detail how several traders in the firm approached this excellent trading opportunity. Stay tuned.