Going for prop money

F

foible

I've just quit my job and joined a prop trading firm to live out the dream of professional speculation. I've been at it for a week now, and what do you know, it really is as hard as everyone says. And then some.

I want to keep a trading journal for myself and as I've been very impressed with the comments that have come in on some other threads and the inspiration they've given, I thought I'd go public, too.

Also, I realize that while my firm will let me use their money, they've decided to protect themselves with tight stop losses (enforced by their software) instead of actually teaching us anything. So, while they joke about other firms adopting a sink-or-swim approach, I don't think it'll take too many months of bills with no income for me to feel like I'm sinking.

They started us on LU and NT so that we could experience the thrill of trading without many losses. Well, yeah... I spent a while shaving fractions of a penny on LU, trying to make a few dimes after fees, only to lose a dollar when the stock moved against me! Argh! A couple others that are learning with me are able to make money, but not much. It takes a lot of time to get anywhere, and the shaves aren't traded heavily enough to let one scale. Sure, you can make $5 in one day, but that doesn't mean you can make $500 with 100 times the buying power.


So, with my whole one week of experience, I don't rightly know what style I'm trying for. I'm thinking that I'd like to capture 5-10 cent moves on cheaper stocks (larger moves for larger stocks). It seems like, with some relatively simple indicators (EMA, stochastics, and MACD), some knowledge about how a stock performs, and close attention to the Level II screen, it should be reasonable to capture these. (Right now we're only allowed to trade a handful of stocks, so I haven't had to get into stock selection yet.) Best of all, I think this method can scale up, once I get some more money to play with.

But what do I know? Apparently not much, but I'm learning :)


A couple extra bits of background on me (as personal details will have to suffice, as I don't have any trading details yet). I'm in my 30s, and had a pretty good career in tech. I have enough in savings to let me learn for a year, but I think that I may succumb to the lure of money after much less than this, if I can't make trading pay. From what I see, half of each training group doesn't make it past "graduation" to start earning money, and half of those that do start to earn money won't make it more than a month or two. And it looks like those that do make money don't last long either, though I secretly hold out hope that they've left for a firm where they get better rates :)
 
So anyway, this week I've had four down days (lost between $1.30 - $5.60, after transaction costs), and today is my first positive day. The "adjusted net" is without the firm's execution costs, which they waive while we learn. It's the one that really needs to be positive.

trades: 39
shares: 4200
adjusted net: $5.45
net: -$1.57
gross: $9.00

(All of these figures would be much higher, except for the number of trades and shares which are artificially high. We're supposed to do a minimum number of trades while learning, so I just flipped LU for flat after making my profits. Gotta love those hoops.)

The profits came from EWJ which opened by gapping up hugely. I expected the gap would close, so I was looking for the shorts. I found one and made some money on it, and found a second but passed it up (fear? caution?). Ironically, the big move of the day was positive, but I completely missed it because I wasn't looking for it. So even though I was getting all of the signals, I still missed it. Okay, I saw it but kept finding reasons to avoid it - it's almost over, it won't be big, blah blah blah.

Not sure what to make of it. Something to ponder.
 
I would suggest not having a predetermined bias when trading. Your guess of direction premarket is not going to be very accurate, and you would probably have more sucess going off what your indicators and rules are telling you.

Good luck!
 
The guy is just getting started...cut him a break! He's starting to figure things out though. The only advice I'd offer is seek out a mentor, someone who is really making money trading, and learn from them. If you're being taught to trade LU or NT by someone who is making good money, then continue on with that track. If not, then you have got to consider making some changes to your game plan once you realize it's not working.

Good luck!

Mike

P.S. I was in your shoes 5 years ago, the game can be beat!
 
Mike, thanks for the tip to seek out a mentor. It has been rattling around in my head, but I haven't found anyone that I really admire yet. Sad, huh? The sister of a friend of mine is quite good (a couple thousand a day), so I'm hoping that I can spend some time with her, but she lives quite far from me so I don't know how that will work. I'll keep my eye out for others, but I'm hoping that you guys can keep me straight and honest :)

BTW: do you know of any better ways to get a mentor than trying to hit up guys that I am working with?



risktaker - haha, no kidding! I sometimes feel like I'm like a poor Chineese peasant that's taking a job in a Nike factory in order to learn how to sew. But from what I've seen, the firm is open to letting traders pick their stocks and their strategies, once they've proved that they can leave losers and are fast enough to get into winners. So while they don't offer much for training, they aren't erecting many road blocks either.

Otherwise, it seems like a good environment to experiment, put into practice some of what I've only read about, and take some risks without worrying about whether a trade will make a difference to my diet or heating.


Szeven - thanks for the tip. I finished reading "Practical Speculation" and am taking a long look at the indicators I use, trying to see if the're imaginary or not. On your advice, I will try to play both sides, though maybe with larger share sizes when I'm more confident. We pay very low costs, and our losses don't roll over into the next month, so this is the perfect opportunity to experiment.
 
Painful, horrible day, and it all started out so good.

I was confident, happy, and prepared for a great day of trading. I was set to trade EWJ and enjoy a little ride, especially since it had gapped up so nicely. Only the thing wasn't moving. I entered into a couple of positions and closed for flat or a 0.01 loss, and was in my third position, waiting for a move when the firm's trading coach came in. He got really mad that I wasn't trying to close for a 0.01 profit. I explained that I was looking for a bigger move, and based on the past week's behavior, I thought this was a reasonable expectation. He was having none of this and left with the demand to stack some orders. I ignored him, and he was back within the minute, even more angry. Said that if I was going to trade like that, I could do it at home.

I spent the rest of the day getting screwed over by EWJ and L - screwing myself over, really. I would take frequent walks down the hall to calm down, but when I would trade, I couldn't control my anger and kept getting into losing positions, which would make me angry at myself as well as at the coach.


I spoke to the head of the office after trading, and he reassured me to some extent that he only cared about making us profitable, but that it was important to enter in a lot of trades in our early careers (they waive the execution fees, so this isn't entirely a sneaky way to churn up huge fees). So I guess if I really want to stick with this firm, I will have to keep moving a few LU or NT shares and make it look like I'm being productive while I watch the tape and charts for the start of moves.

I have a real problem with authority and make-work, so I'm not sure how well this will sit with me, but if I'm going to trade successfully, I can't get into fights with this guy as I trade like crap afterwards. I liked the idea of only having to face my wins/losses, so this guy getting into my gob is disillusioning.


Oh, another observation: stocks don't move much in the run-up to the Fed talking (the move in EWJ never did materialize...)

trades: 34
shares: 3800
adjusted net: -$6.49
gross: -$5.00
 
Guys start on EWJ at our office some times, and its obviuosly not a moving stock. EWJ does gap with the nikkei, but during the day it can go hours without moving a cent, so its tough to say you 'expect a bigger move'.

Its much easier to just manage orders outside the market by 5 or so cents on ISLD and/or ARCA, and then just make the spread on the inside price. This way you dont have to take gross losses because you just flat auto ex to the spec. Watch the TAS and lvl 2 and you will find what gateways are printing.
 
Szeven,

Maybe this reveals just how dumb a noob I really am, but what do you mean by "manage orders outside the market"? Does that mean you post bids and offers at each cent above and below the open price and, when you get filled, try to close for the spread (0.01)?

And, what does it mean to "flat auto ex to the spec"? I know what it means to flat a trade (close for no profit), and I think I know how to route an order to the specialist, but what is "auto ex" and why should I flatten to the specialist instead of to an ECN which seems to get me filled faster?
 
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