Saturday, April 17, 2010

Where to Trade: Finding a Trading Career

Props to SMB Trading for their excellent post on finding a new trading home. Time and again, I've found that long-term success in markets is not just a function of who the trader is and the strategies they trade, but also their trading environment. Being around successful traders can help you become a successful trader; having the right tools can help you do the job well. As Steve mentions in his post, the right technology is crucial; proper resources to assess and monitor risk can make all the difference in one's eventual distribution of returns.

My experience supports Steve's observation: In the present environment, many traders are losing their jobs, many proprietary trading firms are consolidating. This is especially true among discretionary, "point and click" traders and firms. The combination of low volatility and intense competition from very efficient, well researched algorithmic intraday programs has made it difficult to survive in the intraday trading environment. I am seeing people who have made money consistently in the past now struggling...and I am seeing that on a firm-wide level as well.

But what hurts many traders and firms as much as the low volatility and intense competition for the next tick is the absence of a facilitative trading environment. Whether it's the environment of an individual, independent trader or the environment at ABC Chop Shop, rarely is the environment set up for ongoing learning and development. If Firm A hires analysts and produces fresh trading ideas each day, then brings traders together each morning to generate further ideas, and then provides mentorship opportunities to learn from each trading day and Firm B provides little more than a trading box, screen, and order management platform to traders, which firm is more likely to thrive in good times and survive in tough ones?

When developers create their algorithmic trading programs, they intensively examine what works and what doesn't work. They monitor how those programs are performing in real time and have procedures in place to determine the proper degree of risk to allocate to those programs. They trade multiple programs, so that they always have income streams when any single strategy is underperforming.

Individual traders? It's rare to find ones who sustain the process of keeping a substantive journal from day to day. If there's an entry in a journal, it reads something like, "I lost money again today. I need to be more patient with my trades and get out of losers quickly."

C'mon. Who is going to win in such a scenario? The well-researched and continually tuned computer program or the frustrated trader who doesn't take the time to translate a good intention into a concrete plan for action?

But it's like growing up in a dysfunctional home or without a home at all: It's difficult to generate the right kind of environment for yourself when you've never experienced one. This is a particular challenge for independent traders. If you've never been part of a high performance environment, it is difficult to weave one from whole cloth.

I give a great deal of credit to some of the efforts to generate online trading rooms that illustrate actual trading in real time: they not only provide a needed layer of mentoring, but also build a community--a trading environment--among their subscribers. IOAMT comes to mind here, but there are others; do your diligence in researching and pursuing these. Through the online medium, there's no reason why traders cannot create high performance, learning environments.

But I'm overlooking the best part of Steve's post, just as SMB missed it in titling that post. For the best and brightest, it's not just a matter of finding a new trading home, but rather creating one. Some of the people I like best are those that grew up in suboptimal home environments and used those to create new, positive ones for themselves and their children. Traders can do the same: by teaming up with the right partners, you can generate the environments that can take you to the next level of performance.

And have a helluva lot of fun in the process.

Environment matters. Few people will challenge themselves to stay outside their comfort zones. An environment that stimulates you, challenges you, and backs you up can be every bit as important as the markets and setups you trade.



Roberto said...

Dear Dr. Brett,

You're teaching very much and very good and giving lots and lots of help to independent traders or those who wish to be one.

On the other hand I find you're often very negativ about independent daytrading and in several blogs you advise strongly against it, which I think is quite disturbing sometimes.

One might lose his/her necessary positive attitude and start to doubt himself a bit too much. Contradictio in terminus?

Best regards, RDV

Brett Steenbarger, Ph.D. said...

Thank you, Roberto; your comment is valuable, as always.

If I make traders feel uncomfortable about the competitive environment and highlight what's needed to maximize success in that environment, then I feel I've done my job well.

If I see someone on a sinking ship, my task is not to contribute to their positive attitude.

And if someone is on a well-captained, well constructed boat, they won't be disturbed by my pointing out the stormy seas.


James said...

Its a terrible time to get into trading. The government has created so much uncertainity that its no longer possible to make decisions based on fundamentals. We are tampering with our economy on scale unlike anything before. intraday strategies that make small sums of money are really the only way to go right now.

Gangineni Dhananjhay said...

Dr Brett,

In my own small way I am trying to build superior trading environment for Independent active short term traders in Hyderabad. My trading room walls are filled with quotes from Victor, Dr Brett. Most of my discussion matter comes from traderfeed articles and the approach described there.

My effort is to build a team environment modeled after SMB Capital, Trading RM albeit in a very small way.


Gangineni Dhananjhay

Luis said...

Some folks think that will be no place for discretionary traders in the future. What will be this business? A battle of algos?

Bryan said...

Just gonna add my 2cents worth to one small part of your post.

IOAMT: While I have the utmost respect for Bill Duryea and feel he is an excellent teacher of Order Flow recognition and Market Profile basics...his trading room and style are very dangerous to most traders.

He trades largely without stop losses in place, frequently averages in to losing positions with the sole purpose of getting out for even etc...this works for him because if he gets too far down he has the ability to increase his size 10fold and scalp for one tick to get the money back.....

I could write much more but it doesn't really matter. I know there are many readers here who take a link from you and treat it as the gold-standard. I just wanted to post a yellow-light on this one....

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bleurain said...

This post really hits home for me. I'm a Firm B prop trader and I've been struggling for the past 2 years. I used to trade in the office but now I trade remotely at home. My trading and learning has both been stagnant. Also my firm, Assent LLC, has announced they are getting rid of their prop trading business. I am looking for a new "home" to trade in NYC. Any recommendations for trading firms in NYC that also provide the type of environment you wrote about?


Claire said...

re :IOAMT. He's been trading like that for years. I'm amazed he hasn't blown up yet.

That kind of progression betting is very risky, but you can make $ for a very long time if you don't run out of capital first.

Guava said...

The stand you took here is worth a praise. In trading your career is bright but trade with wisely and take a sl.