What if I told you some of the best prop traders experienced periods of awful trading? I might go so far as to say their results were awful during specific periods. They lost money. They made unforced errors. They lost confidence.
You might have periods in your trading where you conclude you are terrible. You wallow in despair that you stink at trading. The thing you want to achieve most in life, becoming a consistently profitable trader, seems out of reach for you.
But are you terrible?
Do you stink?
Is that despair warranted?
What if I told you that even the elite traders at our firm have their kryptonite? This should give you comfort and hope. You should want to know how they overcame this awful trading.
But first, let’s share examples of elite trader kryptonite.
Elite Trader Kryponite
What are some examples of elite traders’ kryptonite?
One star trader loses too much on the front side. He needs to be repeatedly reminded to keep these losses at a minimum.
Another elite trader frequently loses money shorting stocks he believes are overbought. He is great, I mean as good as it gets, at trading undervalued stocks on the long side. He is terrible trying to short stocks that he feels are overbought.
One team leader is overly optimistic an oversold stock will turn. This causes unnecessary drawdowns and reduces his ability to place risk when the stock does turn.
One of our star young traders struggles when he is not selective enough in his A+ trades.
(The Only Price Action Patterns You Need to Know)
Our latest trader to reach seven figures a year in net trading profits stinks when he thinks he knows more than the price action. Paging @alphatrends, who reminds us, “The only thing that pays is price.”
An 8-figure-a-year trader looks like an amateur when he overuses an options hedging strategy.
One of the best traders to walk into SMB consistently loses money when he allows his greatest strength to be his biggest weakness—tenacity.
One legendary prop trader suffers unnecessary oversized losses in trades that are not working.
This teaches us that the stars struggle, too, when they do not emphasize their strengths. The stars stink when they use trading strategies that are not best for them. Studying the star traders teaches us that we must actively work to eliminate our poor trading.
What elite traders do to combat their kryptonite
What elite traders do next may be the difference between your and their results. They meticulously, consistently, and regularly study their results and eliminate the strategies that are not working for them. They put in place solutions to minimize the periods of awful trading.
They might swear off a strategy altogether.
(Trading Psychology: How to Handle FOMO (Dr. Steenbarger))
They might ask the risk manager to help them avoid their kryptonite.
They might minimize the risk of underperforming strategies as they tweak entries and exits.
They might share their kryptonite with their trading team and ask team members to hold them accountable for unnecessary losses.
They identify their kryptonite. They incorporate solutions to eliminate its harm.
That brings us to the next exercise we can do together to improve your trading.
SMB Challenge
With that said, let’s lay down an SMB Challenge for the trading community.
Each month, measure your trading stats and eliminate the strategies you trade most poorly. Place solutions to avoid your kryptonite. This is low-hanging fruit that can improve your trading performance.
Now, of course, if there are easy corrections, you can make to turn those strategies into consistent profits. And you can make those changes. Then, experiment with those adjustments during the next trading month using minimal risk. Then, at the end of the month, measure if those changes yielded consistent profits.
Going forward, each month, consistently and diligently scrub your trading results to eliminate what is not working for you. Identify and eliminate your kryptonite to help you become the trader you were meant to be.
Maybe you can become the next superhuman trader by avoiding your kryptonite.
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, @MikeBellafiore, is the author of One Good Trade and The PlayBook. He welcomes your trading questions at [email protected].