A bottle of red, a bottle of white,
Whatever kind of mood you’re in tonight
I’ll meet you anytime you want
In our Italian Restaurant.
Billy Joel
A twenty something professional trader enters Zagat’s highest rated Italian restaurant in Soho for a free dinner with a founding partner of his firm. It’s Soho so all this was preceded by four blocks west in the wrong direction and three blocks south of misdirected walking. An eastern European wannabe model escorts them to their reserved table. Fifteen seconds of visual entertainment for two guys stuck staring at trading screens packed with uber fast moving numbers all day long. They are seated away from the commotion and the people who want to be seen. They can talk freely.
The twenty something is a star trader, turned head trader. The conversation quickly turns to work. How to get their guys to trade with more size for A trades?
The head trader, recently recognized as one of the top traders under 30, offers, “The problem is a new guy is right, makes $1500 and thinks he has had a good day. He hasn’t. He should be focused on why he didn’t make 5k!” says this recognized trader passionately.
The A/C is broken in their private area but after grinding it out all day long, and engrossed in the problem solving, the 90 degree indoor heat is given little thought. While devouring a mixed greens salad, presented as if gift wrapped from Tiffany’s, they make more progress.
“We could enforce our rules that if you are in an A position YOU MUST risk 30 percent of your intraday loss on this trade,” says the experienced trader who will be paying the bill. This is an idea that receives further discussion.
Over home-made al dente pasta a new idea challenges the firm’s teaching principles. “When a stock starts to work we should be adding more size. Too often new guys are lightening up. If the target is 40 then adding at 39 when the play is working statistically often is the better play rather than lightening up. They are fighting the math.” This is a brilliant observation one that every developing trader should give more thought. How many times do you lighten up when you really should be adding?
After two glasses of wine, the best italian in Soho, now too long in a restaurant with broken A/C, it is time to pay the damage and head home to rest for another day of warfare in the trading arena. The twenty something star trader does not fail to enjoy one last visual take on the way out, while the veteran trader tries very hard not to look. They start walking to the subway which will be as easy for them to find down here as it is for a new trader to hold for the real move. They bump fists good night (their trading gang shake), head their separate ways, and will think about this conversation obsessively during their free time for the next two weeks.
Mike Bellafiore
Author, One Good Trade (Wiley Trading)
4 Comments on “Scenes from an Italian Restaurant”
good point about holding winners. for that i’ll recommend Steve Spencer’s post on why inexperienced traders fail to hold their winners. maybe you can make “this post, your own” and give us your take on why we can’t hold our winners. sorry couldn’t help myself with the pun.
Maybe the newbies need to think about it in a different way. Instead of thinking of scaling in/out, think about one good trade. Then one good trade. Then another. That helped me tremendously. I think of each entry as a separate one good trade. If there’s opportunity (good Risk:Reward), I make another trade in my trending stock, trade2hold.
I do wonder if it is important to lighten up at known resistance levels. On page 52 of the book, the discipline section says the trader will sell some approaching the resistance area then add back in once holding above it. There could be an appearance of mixed messages if you don’t distinguish the details of when to lighten up and when to add. A miscommunication is easily missed sometimes between the experienced and the newbies. In the replay section, the trader seems to think it was a mistake to sell any before the resistance area. Was it?
JCaldwell,
There is not a right or wrong answer here. There is a philosophy. Right now in this market stocks are trending nicely intraday with fresh news. And the trader should be reviewing his work finding areas to add size and thinking about the very questions you are asking. And not patting himself on the back for a day that could have been much better.
Bella
Playing around a core, scaling in and peeling off, is fine, but as Bella says, if the market is showing you that it is trending, why peel off any, add.
Well written entry, Bella. Made me chortle.