Chapter 1. Trading 101. Welcome to the prop desk.
Disclaimer:
Please keep in mind that all the thoughts in the journal are based on an intraday perspective and on the at-the-moment understanding of markets and stocks, which was not profound. I had an overly bearish outlook on most of the companies/tickers I traded, and it took me a while to start recognizing the possibility of great price action on the long side despite the poor fundamentals.
After finishing my series 57 exams, I was ready to go all in and trade the best trading of my life. I was pretty naive, had no idea what I was getting into and how it would change my life.
Later I saw many new traders coming in with the same misconception. First of all, it is rather hard to get selected to trade for the prop desk, if you are not profitable already; on the other hand, if you are profitable, why would you need a prop desk? On top of passing through the selection process, you must pass the FINRA exams. In the trader’s case — it’s SIE (Securities Industry Essentials) and Series 57. It took me two and a half months of studying and 15 extra pounds. I was trying to sit and learn at least 9 hours a day on average while barely taking days off. The thing about these exams is that they are talking about things that are entirely unrelated to trading small caps. It was not easy for me to grasp all the concepts about bonds, debt, etc. without any prior experience. So you can imagine this feeling when your dream is coming true, you get accepted into a very close-tight community to learn from the best of the best. At this moment, MoneyG and HFT were consistently putting $1.5k -$2k green days on while occasionally taking modest losses. In my eyes, those guys were legit masters of the trading universe, and I got a chance to learn from them and eventually transform the lives of my loved ones and mine.
It felt like… ok…. I made it… 6 months from now, I’ll be banking the same way they are, or possibly even more. LOL. L O L. Nope.
This never happens with traders with minimal prior experience, or at least it never happened to me. Later I learned that all this struggle to get in was nothing compared to the struggle of being consistent every day. As Mike Bellafiore says in one of his books, you rarely progress from being unprofitable to being profitable right away. Nope.
Grind to consistency
The way it works is you start with losses that compound on one another, slowly (and this only! if you are getting it) your account PnL moving from being down close to your lockout on a daily basis to just being down a bit, with some successful days happening. From this stage, you are moving into being green gross, but after all the fees, you are still down net. At this stage, you have to learn all ins and outs of using proper routes. For example, sometimes, you want to pay extra by adding liquidity on reverse exchanges. Sometimes you want the rebates, and you just sit on the specific exchange or dark pool and wait for the fill. Sometimes you decide to go for the midpoint (the difference between the bid and ask) and get a fill without showing your size on exchanges. Understanding how to be in control of all these small things is what moves the needle at this stage.
After this lesson is learned, you have all the chances to start booking small profits consistently, and from there the most exciting and challenging part of making real money commences. Money people can earn on regular jobs in months or years. This is probably the fascinating part of the trader’s journey, but it’s not an easy one.
It never gets too easy… The everyday price action in the markets is conditioning you to expect the unexpected, and what is more interesting is that each level of your development meets you with new challenges, but it also unlocks a more profound understanding of how stocks move, why they do it, and how to take advantage of it. In our case — how to make money off it! But I’m getting ahead of myself. Let’s focus on the current moment and how it felt to live through it.
By this moment, the biggest part of my savings was gone since I wasn’t working for almost a year. I decided to bet my life on a trading career. While I still had sources where to borrow from like family and friends, things were tough. Mine and my fiancee’s (we will call her Lo. going forward) budget was constrained to stay under $3k each month for the next year — only to give me a fighting chance. Looking back at it, I would never do this to Lo. or my family again, but it happened and served its purpose.
Getting back to setting up a stage to where I was mentally: we were eating a lot of buckwheat with 1 avocado a day split between us (this was our ration — to stay within the budget), and I was commuting on a bus for 1.5 hours one way only to get to the desk. However, the moment I was stepping in and seeing MoneyG or HFT, things immediately were getting exciting. I always knew in my heart, if they made it, I might too. We are all humans, and everything is possible.
Incremental improvement 101
My seniors HFT and MoneyG gave me room to experiment, poke things around, and start slowly absorbing things. It all ended at some point with the words, “Peter, you have to start putting green days on”, but before this, I just kept doing what I thought was right.
In reality, it was a lot of overtrading, FOMO, and scared trading (not letting your trade thesis work and either having too tight stops or just taking off too early). In a way, I was a happy idiot who had no idea what he was doing, but I gathered very early; if I were to stay, I had to change. One of my peers at the desk — Riskless, helped me realize it, but I’ll get more in-depth about the people I traded with and what I learned from them in the following chapters. All the journals you will see represent the simple idea: journal your initial thoughts, think about what you observed, analyze, go back and read again, keep doing these iterations — and eventually become better today than yesterday — incremental improvement 101.
I spent so much time doing this simple exercise. I documented my journey so well; it just felt like a logical step for me to share it with a new clique of traders that came after me with the hope that all that re-reading and reviewing effort might help someone interested in the trader’s path to learn and evolve much faster than me.
As you will see through all my journals, it took me almost a year to battle extreme over-trading and two more to stop shorting frontside. But on the other hand, I never stopped trying new stuff, so I believe you have to experiment and put money on the line, but you have to be able to catch yourself when you start doing stupid shit. That is what HFT used to keep saying to me. It took me four years to grasp what he meant and get my own deep understanding of what it demands from a trader.
But yeah, HFT and MoneyG were right in pretty much every tip they shared with me. The hard part is making these tips your own; you will have to endure severe soul-seeking to get there. This is also one of the reasons I’m going to share everything I learned: There is such a massive gap between knowing the concept and putting a trade on with decent size and being able to hold long enough for it to play out.
This kind of innate feeling of a stock move comes with a high price to pay and a lot of heartbreaking experiences you need to endure, and this is the only path to grow for an aspiring discretionary trader. Trading is a craft, and you have to commit to it and sacrifice something to get it. That’s how things are like it or not.
As for the actual trading during my first two months, I didn’t understand much, and although I was trading all the well-known small caps POSs: $IZEA, $CEI, $VTVT, $SAEX, $WATT, $BIOC, $GEVO, and many many others. I still had no idea what they were how and when to trade them.
To illustrate how clueless I was, imagine me just starting out with the firm, and every day, I asked MoneyG and HFT to load $WATT locates in the system. I had been doing this for almost two months, and I think, for the most part, I was the only one trading this name on the whole desk. I was too biased about what this company was and too inexperienced as a trader to go with the price action, so I never made any money on this name for my whole career.
This is how I learned the fundamentals don’t mean much unless you can pair them with the proper market timing for your entries. And this “proper timing” is the hardest thing to attain. The career of every intraday trader depends on this concept; ironically, it’s an art and not a science.
Read next: Chapter 2. “Peter, you have to start putting green days on”
Read next: Chapter 1. Trading Journals 1–37
Read next: Chapter 1 Trading Journal #1–01/04/2019 +$33
Resources
- Connect with me on Twitter, Linkedin, or hit me up on Telegram
- Table of contents — everything posted up to date.
- Subscribe below to get new post notifications.
