Saturday, January 30, 2010

To SMB: what I have learned and applied

Hey Roy,

Long time no talk. How are things going? How is the new location working out?

I just thought I would check in and update you on my progress. I have been putting in many hours to develop my trading skills and hone in on the right time frame for me. As I had mentioned to you when we met in NY I had traded options in my own account with marginal success. Basically flat over the last few years. When I signed up for SMB's training course I had every intention of Day trading. But the more I did it the more I realized that I prefer not to watch every tick. So about 2 months in to trading with OVC capital I had to take a step back and re-evaluate what would be the ideal time frame and setup for me. That is when I decided to go back to trading options and apply the skills that I had learned from SMB, and this has been very successful. I still do make the occasional day trade if the trade is compelling enough, or sometimes I use options to make the day trade. Not that I have enough time to call out any trend, but I have been profitable 3 months in a row now. But this is not the most important piece of information I want to share.

I want to share with you the reasons I believe I have been profitable 3 months in a row. A lot has to do with the skill I acquired from SMB:

1) Proper preparation: I have spent many hours developing a routine for researching trade ideas, reviewing my trades, and preparing myself to compete against some of the most competitive people in the industry. As Bella says, I know there are many traders that are way better capitalized and probably smarter than I am, but I have made it a goal, even a necessity to better prepared then they are if I am to have any chance at succeeding at this in the long term.

2) Hard Work: I blow through tons of charts identifying levels and try to identify High probability trades that offer good risk/reward. And then once I get a good list of about 12 solid trades ideas I add them to a watch list and I go through them again and maybe 3/12 end up actually making it as an actual trade. I have created my own trade tracker and have developed my own metrics to measure my trades. My buddy and I have a private blog where we post our rational for getting into every trade. I blend technical analysis, fundamental analysis, and with options I have the probabilities to consider as well.

3) Patience: There are many trade ideas that I put on the back burner as they are good ideas, but they are not quite ready yet. For me switching from day trading to options with a little bit longer of a time frame I am better able to refrain myself from over trading (personal preference). This is not to say that I do not jump in and out, because sometimes I may think the trade is ready and the market tells me otherwise, so I have many ideas that end up in a few scratch trades that eventually turn out to be profitable when the time is right. One thing I have learned is to be mentally agile and I have learned to separate my bias (For the most part) from my trading and just play what the market is currently offering.

4) Detailed plan: As I mentioned before in the blog that I have set up I detail out every trade. I post charts where I identify important levels and targets. I set out a defined stop loss and go through what/if scenarios. I post the risk profile of my trades as well as the probabilities. And lastly fundamentally why I like the trade. Not all these have to align. But as SMB teaches you are looking for "checks" in you favor. And obviously the more checks in my favor the more confident I am about the trade and the more size I will put on, but size also depends on the stock that I am trading. Just like in day trading, trading 10 contracts of GE is much different than trading 10 contracts of GOOG.

5) Discipline: This is very important. Once I outline the detailed plan for my trades, I need to have the discipline to follow through with it. I need to respect my stop losses and when I hit my targets to exit the trade. This is not to say that I can't make adjustments as certain factors of the original analysis may have changed, but for the most part I find that my most successful trades are the ones in which I follow the plan and the what/ifs that I have outlined.

6) Sharing trade ideas: This is the purpose of the blog. It is not only a place of record that I can reflect back on and evaluate my trades. But it is also another source of idea generation. Sometimes I like some of the trades that my buddy posts. But the other purpose of the blog is constructive criticism and full transparency. We help each other see different angles to our trades that we may have not considered. We also have a regular schedule of posting our results and the metrics that we track to keep each other accountable. Like I mentioned earlier, I have developed my own trade tracker and come up with metrics that I think are important and measure my trading strengths and weakness (but it will also be a work in progress as my trading progresses). We both use a uniform format so that we are comparing apples to apples. And we both trade the same style. The only difference between him and I are the account values that we trade with (he has $250k, and I have $25k), but the metrics we have developed are independent of account value. As the trading results in my opinion are all scalable.

7) Review : I review every trade I have open as well as each trade I close. More often than not I review my trades on a daily basis, making sure the trade still makes sense. I also review each closed trade and add a recap to the original blog post with my results and the learned lessons. In addition to this I add the inputs that I track to my trade tracker.

Do these look familiar? These are the most important things I learned from SMB capital. Before I trained with you I thought I was putting in the work necessary to be successful but was confused as to why I wasn't really making any money. I was reading all the right books and I understood all the theory behind the option strategies I was employing. But I was missing the 7 fundamentals that SMB teaches. Everyday and every trade is a learning experience. I am continually adding plays to my play book. As you guys teach to be mentally agile this has been very important, especially as the complexion in the market has changed. The last 3-4 months for me longs made me money. But as the market has changed its tone I had to start making adjustments, hedge some of the longs I still had on and start looking for ways to make money on the downside. I do find it a bit difficult mentally to short the market but I am working through this as you need to be able to make money in up, down, and sideways markets.

So thank you for the mentoring and I think the program was more than worth the $5k that I paid. You have taught me skills that will pay dividends over a long trading career. I hope to make the transition to trading full time over the next 1-2 years. For now I will fit it in with my current job. But don't get me wrong I spend at least as many hours at trading as I do at my job if not more. The days get long but it never seems like work. I just can't wait until I am at a level where I can do this full time.



1 comment:

  1. Very cool Dom.

    Ironically I've been thinking about contacting Roy recently to discuss the program and trading on their desk. After about 9 months consideration I've realized that I need to be part of a trading community or at least strive to be around other experienced traders and all the intangible value that it offers.

    While I'm not crazy about my job I like being around people especially passionate people who share similar interests and professional ambitions. I discovered this after many months of sitting alone at home at my workstation. I like the community aspect more than just the financial return.

    That's why I've shifted my focus from OVC to SMB. I'm going to need support, feedback, continued mentoring, cordial competition, friendships and a host of things I'm not aware of to succeed at day trading...

    Now I just gotta let go of some of capital and block out a month of my life to prep.

    I'll keep you posted.

    Thanx for sharing.