One Good Trade

 Do not judge a trade based upon its results! A profitable trade may or may not have been a good trade, what I call One Good Trade. A loser may have been One Good Trade. If your fundamentals for a trade are sound, then that is One Good Trade. Consistently profitable traders obsess about making One Good Trade and not money. Your job is to make One Good Trade and then One Good Trade and then One Good trade.

Here are some statements I do not like to hear :

“Damn, I cut too early. It went up a point after I sold it.” 

“I was scared to buy XYZ because I thought it would trade lower.” 

“What a rip! I loaded up and XYZ traded against me. What a stupid trade!” 

“I am just long. The stock is going higher.” 

All of the statements above are about results. Such thinking is your enemy. I am not trying to make money as a trader. My focus is on “doing the right thing.” All I can ask for is excellent risk/reward opportunities. And then I execute. Being good at my job requires an obsession to my trading fundamentals. Money is just the by-product of me executing fundamentally solid trades.

DEFINING A BAD SALE

The most common statement I hear from new prop traders is: “Damn, I sold that stock too early.” And without fail, they search for me to discuss this perceived error. Here’s how a typical conversation with a new trader usually goes:

Bella: “What was your trading plan?” 

Trader: “Thirty was holding the bid so I got long. I was going to sell when the stock traded higher and slowed. I sold the stock when it slowed. But it traded a point higher.” 

Bella: “Why was that a bad sale? That sounds about right.” 

Trader: “Well, the stock traded a point higher.” 

Bella: “So why does that mean you made a bad sale?” 

Trader: “I missed out on a whole point of the move.”

If the new trader followed his detailed exit plan, then he made One Good Trade. This is great! He did his job! Now the new trader may have been slow to reenter to catch the next point upmove, with a new One Good Trade, but his original sale was correct. If we see an opportunity soon after One Good Trade, then we will immediately re-enter. Remember, we make One Good Trade, and then One Good Trade, and then One Good Trade. We do not make One Good Trade and then take a nap.

Perhaps the new trader did a poor job of establishing his exit plan. Perhaps the setup initially called for a longer holding period. Once a new trader realizes this, he should know where and how to fix his problem. We may need a list of all of these longer-holding trades with defined exit plans, distinguishing from shorter-term trades with different exits.

YOU ARE A TRADER, NOT AN INVESTOR

It’s important to remember this mantra: I am a trader and not an investor. In fact, new traders ought to put this phrase on a Post-it on their screens when they begin. In an ideal world, traders catch a stock’s entire intraday move. Sometimes, you’ll get all three points of an anticipated three-point move. On occasion, you’ll catch four and a half points of a three-point move. And yes, sometimes you’ll sell or cover too early. But the analysis is always the same. Did you make One Good Trade and then One Good Trade? That is all you can do.

If a stock is a sale and I sell, then that stock trades up 10 points, and at no time could I identify One Good Trade, then my initial sale was correct. I do not care where that stock trades after a proper sale nor should the new trader.

“Bella, are you ever scared to buy in front of support because the stock may drop?” a new trader asked once in a Tradecast. My response? “No.”

If I buy in front of support, the stock drops, I exit and take a loss. Assuming I had sound reasoning for doing it and followed my rules, this is still One Good Trade.

To borrow phraseology from the Ragin’ Cajun James Carville, “It’s the process ... stupid.”

Overvaluing a Rip 

Traders too often overvalue a rip. They find a great setup, it does not work out, and they take a rip. The next time this setup appears, they are hesitant to enter. And then invariably the stock goes up three straight points. Ever happen to you? Of course it has.

How can you judge this specific trading setup if you are sabotaging the results? Your rip must be blended with a potential three-point chop. Then judge that trading setup. But we overvalue the rip and then do not catch the easy trade. That is why we instruct our guys not to care about the results. Again, it’s the process ... stupid.

“I Am Just Long”

our job is to trade. We’ll leave the “investing” to those who invest. If you’re “just long,” you must manage your position.

One Good Trade is not arrogantly concluding that you know best.

You can be slow to sell, but you must be looking for clues of when to scale out.

THE FUNDAMENTALS

1. Proper preparation 

2. Hard work 

3. Patience

4. A detailed plan before every trade 

5. Discipline

6. Communication 

7. Replaying important trades

TRADERS ASK: “I’M STILL TRADING POORLY. WHAT NOW?”

We, as prop traders, focus on the process and not our results. Again, this is the essence of One Good Trade.

You must have the discipline to hit a stock that has exceeded your exit price. With One Good Trade he would have recognized this flaw and sought to eliminate this weakness.

PROPER PREPARATION 

“By failing to prepare, you are preparing to fail.” —John Wooden

There are two parts to proper preparation for us: 

1) the preparation necessary before the Bell rings (9:30am)

2) the specific trading information you must obtain before you can make a trade. (Charts)

Like great basketball coaches who learn from other coaches, they borrow plays, they learn new defensive schemes.