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What are the common characteristics of top traders?
If I can remember them, sure, but I'm not sure what help it will be since they were specific to a given the trading environment (no commissions, just a small clearing fee of a few pennies per trade, and the ability to get full pass-through of ECN credits. So some of these exercises would kill a retail account that pays $9.99 a trade and can't watch time and sales for which ECN is printing and know what venue is best to place orders.)
I also should point out that this wasn't a company wide thing, just my old manager's way of training up new people. And when he got poached by a large bank, the new manager didn't continue in this way and went to a more hands off approach where trainees were left to do their own homework. I guess that's why I don't mind mentioning them, since it was nothing proprietary to the firm.
The goals were very basic tasks which really were just to give trainees a sense of progression and feedback. Each goal met would enable trainees to have more buying power, or increase their share size.
I think the very first was just to be gross positive by $10. The next was to be 'net' positive by $10 (these might seem silly and small, but the firm never believed in starting people in sim, and within a few days of training you were treading for real.. so think of the micro sized targets as training wheels on 100 shares and $10k in buying power while you learn to punch in orders.)
EDIT: also, we were all forced to trade the same stock, which was slower moving, as it doesn't take a lot of buying power or shares to blow stupid amounts of cash on some yo-yo stocks. Only after reaching a few goals were we able to branch out to others. A good example of a tame stock that might fit such a 'starter' profile is GE -- they do just about everything so it tends to follow the broader index, and the stock isn't crazy volatile intra-day (normally.)
Then there was a few levels of transaction size, 50 transactions in a day without busting out (we had strict risk limits that we couldn't go over or else we'd lose trading privileges for the day), then 100, then 100 while being net positive.
Then there was a few levels of being net positive more days than not over a period of time. Being net positive 3 out of a 5 day rolling period, then 3 of 5 days in a calender week with an average winning day of $50.
The goals kept getting progressively higher in net profit targets from there. But they weren't harder to achieve, since each level passed usually meant we'd have access to more buying power and a larger max share size.
I remember blowing through the first bunch of levels ahead of my trainee group and in my 2nd month on the job have access to half a million in buying power and a max share size much larger than I'd ever need to take. At the time I thought the boss was crazy but I had simply proven I was able to handle it so it was available to me. When I told my manager that I felt the greater buying power and share size was more than I needed given the risk I was allowed to take, he told me the fact that I recognized such a thing and treated it cautiously was part of the reason why it was ok I had it.
These days, such goals aren't used at the firm from what I can tell. They have an entirely different program. I'm not sure what the details are, but if I was tasked to train up a few new traders I'd probably dust off the goal system in addition to whatever material they are using now. I felt the positive feedback and short term achievable goals fit nicely in with the natural way our brains want to be rewarded for work we do in the short term.
Again, I have no idea how to apply this kinda structure to a retail trader. Maybe in spot forex where you can bring your position size down so low the total cost of trading allows for such an intensive and active trading goal set without blowing your capital, but even then it's not ideal. Also, there's no manager breathing down your neck if you mess up or violate risk rules, so the structured environment isn't there... and I wouldn't count on a new retail trader to depend on their own discipline when it comes to risk. So in the end, you can take of this as you will, but don't expect it to fit. :P
EDIT (2):
Keep in mind, even if the goals sound silly or trivial, they also provide a quick reality check for a new trader. If a new trader has various ideas and opinions about the market (and let's face it, we all have big swinging d*ck syndrome when we first see what's possible in the markets) but can't execute 100 trades without being in the red--then they see their peers all around them achieve this--they are in a position where they have to take a long and hard look at what they are doing wrong and correct it in order to advance (or choose to wash out.)
Thanks for your responses. Jack, maybe I missed it in your posts but I'm wondering if you could elaborate a bit on the trading methods used at your equities prop firm? Eg. was it something that was unique / exotic / required specialized market knowledge only available at the firm (specialized indicators or depth of market and such)? Or was it a method that any retail trader could figure out?
I ask because I am stuck in a kind of existential limbo. I have been studying day trading futures / forex for about a year and a half, and I've learned a lot to be sure, but as I mentioned in my original post - consistency eludes me. I have examined at least 20 to 30 trading methods (no kidding) and found each one of them wanting. Statistically, this is ridiculous - the problem isn't the method, the problem is ME. I clearly do not know how to trade effectively, and I'm trying to get down to bare metal to understand what really works and what is just fluff.
I'm assuming (perhaps incorrectly?) that the top traders all make use of a basket of certain market "truths" - eg. support & resistance, or measurement of volume, or trend... etc. I'm trying to figure out what are the basic, essential, time-tested elements or system that somebody must get a handle on in order to trade effectively and maintain consistent profit. Everything after that point (eg. fancy indicators) is just gravy. In the meantime, I feel as if I'm in a perpetual never-never land and it's a real torture for me.
Sorry, a lot of what we do is propitiatory to the firm and I wouldn't be in a position to disclose it. Not that the methods are "secrets" or anything, some are even very common with prop shops.. just can't speak about them given the agreement I have with the company.
I will say that the inherent edge an institution might get over retail is the lower fees and the ability to get paid for providing liquidity. Often I have a lot of break even trades that end up being positive since I provided liquidity both ways. It helps pad your P/L when you do have to punch out aggressively from a loser.
I hope you understand. (And I hope I didn't lead anyone on.. all we were talking about before was a training concept and trading exercises. Not strategies.)
That's not a problem; I didn't expect you to disclose the secrets of your trading plan. My question as simply whether it was something that could only be achieved by working at a prop trading and therefore out of reach for the average day trader. Sounds like it.
Ohh... sorry, I misunderstood. Honestly, I get asked so often about strategy as it relates to my work that I kinda tune out. I should have read your post more closely, that was my bad.
I know you mentioned forex and futures, but just to cover off where my experience comes from:
For equities - There's going to be a few technical reasons why some strategies aren't viable in a retail account for equities. Mostly it deals with direct access and cost structure vs retail broker access (web orders) and retail commissions. Then there's the issue of leverage as well, as in most accounts you don't really get much (2:1, or 4:1 on margin accounts.)
There are a few ways to combat this:
1) Look into direct access brokers (like InteractiveBrokers, Lightspeed, etc..) for equities. This will lower your cost of trading and give you access to two of the most important tools for trading equities intra-day: a streaming level 2 depth of market, and a time & sales feed. You'll likely have to put up a large amount of capital (25k to get past US PDT rules,) but the fees overall aren't bad and you retain total control over your trading.
2) Extend your trade horizon / holding period. No one said you need to trade intra-day to make money. In fact, that game is very hard. By lowering the size you trade and holding out over days and weeks, you remove most of the need for the fancy tools day-trader's use. Since you'd be trading less often, the retail level of commissions won't be as bothersome.
For futures - A decent futures data feed and a decent execution platform is about as advanced as some of the big boys at firms get in the futures world. At least, for straight directional trades.
What they do differently is take less directional trades.
Dude, pure directional trades based only off charts are hard. In any market. Indicators or not.
The good futures traders I know (or heck, good traders in general) usually don't like doing pure directional trades unless they have a really strong reason why they think it will work out. I don't just mean "s/r" or trend lines, or some arbitrary indicator***, but things like event driven momentum (news, shocks in the market, etc.) or some fundamental/underlying reason they believe their directional bias is right. (That isn't saying they don't take directional trades, they still do, and often... they just like having a reason that's strong than just an indicator telling them to.)
***Side note: one common difference I've noticed is that retail traders rely way too heavily on indicators, especially lagging ones, while if you walked around on the trade floor at my work you'd see clean charts mostly. Heck, if you walk around the CME pits you'd just see a bunch of CQG DOM windows and the odd bar chart devoid of color let alone indicators.
Where some firms (but not all) stand out from retail traders in futures is when things go beyond just directional plays. Specifically, they love spread trading. So much that CQG will charge ~1200 a month for their spreading platform (and other vendors are in line with this too.) Calender spreads, exchange supported spreads, inter-market spreads, cross currency spreads, the crack spread, treasury spreads to bet on yield curve changes... this list goes on... Anything that helps reduce directional risk.
For forex -
Like futures, there's not a lot trading for a firm will gain you over retail. (This is assuming the firm is just a prop/fund type thing, not a bank with access to a customer book.)
People make a big deal out of depth of market, but really it's only good for seeing if your order is too big to get the price you're looking at at the time you execute it. The reality is, the market is all OTC, nothing central, and even when some banks and LPs show their depth of market you're only seeing a small fraction of the total market's activity/book.
Of course, if you work for a liquidity provider or bank, and see customer order flow, you can totally gain an edge that retailers have no chance of getting their hands on. However, since the LPs and banks also game each other for business, things are kept pretty fair.
That being said, there's plenty of money to be made as a retail trader. Retailers in forex are killed off more often from things like an inappropriate use of leverage / risk more so than any lack of trading opportunities in the market itself.
--
Lastly, in response to your comment on top traders all sporting a basket of market "truths"... Not in the sense of strategies that have lasted forever and will continue to last forever. There are none. The market always changes.
The top traders I know (from work) all have the ability to adapt. All of them are constantly probing for new ideas and strategies, none are complacent with how the market is working for them today, and none are trapped in victim mode because their money making strategies from years ago stopped working.
They are also all very humble about their trading. There's literally zero ego to detect, the market beat that out of them long ago.
--
It sounds like you're more having trouble with sticking to a plan and keeping focused than issues with a given strategy.
Personally, what helped me a lot was digging into trading psychology. The book: Trading in the Zone, is a good start if you want to look into this. But the big wins come from monitoring your own progression and working out the rough spots as you go.
I journal my trading days and meditate often, for instance, and it helps me greatly.
--
Anyhoo... I hope that helps a bit better than my last post. What you asked was very open ended so this goes off into so many directions I could write for days. :S
I too became curious as to the training for prop traders and how it would work for retail traders as you mentioned. I found it interesting how you mentioned for futures, the difference between spread trading and the average retail trader just wanting to go long or short...
Makes me think that a good indicator is a traders view of risk and ego. Us retail traders just want to be right...have the right entry and exit...but other 'professionals' could care less about being right and just want good odds and low risk.....and maybe a hint there is the reduced margins for spreads.
Great to hear from a pro, thanks for your insight Jack.
"The primary thing required to obtain what you want from life, is simply the will to pursue it, and the faith to believe it is possible." - Author Unknown
"The ability to maintain discipline and stick to the rules is the hallmark of the experienced successful trader" - Curtis Faith
