Two traders, Jim and Bob, worked the S&P 500 emini futures yesterday. Or any day, for that matter. Jim booked +5 index points profit on two trades, quit for the day, and was satisfied with results. Bob took exact-same trades, booked the same +5 index points on first two trades, was not at all satisfied with results and kept trading straight through until price action ceased at 4:15 pm EST.
Same initial results… very different perceptions.
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Assume that Jim was working with an account balance of $50,000 capital and was trading ten emini ES contracts. His gross profit on ten contracts at $50 per index point x 5 points = $2,500 earned before costs. That is a +5% gain on capital, outstanding performance by any measurement of relevance.
Assume that Bob was working with an account balance of $5,000 capital and was trading one emini ES contract. His gross profit on just one contract at $50 per index point x 5 points = $250 earned before costs. That is a +5% gain on capital, outstanding performance by any measurement of relevance.
Identical performance by both of our hypothetical traders in the example above. Jim was very satisfied with the morning’s trade performance, while Bob was not. Why is that?
By 9:30 am EST, retail traders have anxiously awaited for the opening bell since, well, since the last closing bell rang. They read news reports, financial websites and message boards all night long. They watch overseas markets and Globex price action for clues on how the day ahead will begin. Once the start of trading arrives, retail traders cannot wait to enter their first trade. After all, no money is made without taking trades. Mere seconds after taking that long-awaited trade, fear and doubt creep in. The trader who waited so impatiently to get in now looks for every excuse to get out. However big their hurry was to get in; it’s even more of a desire now to get out. And so the process repeats itself, over and over again through the day.
In the case of our ES traders Jim and Bob, a number of mental and emotional factors were at play. Most retail traders consider $2,500 daily profit to be acceptable, many would think they died and went to trader heaven if such balances were seen on their balance sheet more nights than not. By the same token, a mere $250 doesn’t sound nearly as impressive. Heck, guys out hauling scrap metal heaped on an old truck to the recycling centers these days often make more than $250 per trip loaded with short steel or aluminum.
By relative $ (aka mental /emotional) comparison, Jim and Bob feel like they have vastly different results. By comparative % return on account, by comparative trade performance or any other mathematical measure, they are equals. Just try explaining the pure logic of that to Bob while markets are open, charts are live and price action is gyrating up, down or sideways. Bob doesn’t want to hear about any of that logical nonsense… he’s too fixated on making $1,000 today. Never mind that such performance mandates booking +20pts ES between the bells. That is certainly possible to accomplish, every now and then. No way can it be sustained as an average, not even close.
We needn’t say anything at all to Jim. He closed out two trades, booked +$2,500 gross profit and shut down the screens. No watching charts through every wiggle of the day. No fighting sideways, choppy tapes following a big directional push off the open. Jim left the building, off to enjoy a relaxing day on the golf course or fun with his family, miles removed from the mindless drone of financial news TV.
We’re traders… therefore we trade. That’s what we do for our profession, don’t we? Hard work results in goals reached, objectives met and payoff realized. The harder we work the more rewards we reap. Working harder = trading more. Right?
Professional traders treat their trading as a business. They have a structured plan. Said plan does not include trading every wiggle and jiggle in the market, nor trying to shoot the lights out each day. Most trading plans include risk control, profit objectives and what constitutes trade entry, management and exit parameters. I highly doubt many professional traders and money managers have, as part of their written business plan, things like being the best trader of all, being the biggest trader of all, being the most famous trader of all, etc. No ego-stroking dreams fit into a true business plan.
How do professional traders differ from most retail traders stumbling through the inevitable journey from failure to success? I’d opine there are many factors at work.
A glaring one would be quitting while ahead for the day. Ever notice how the first hour and/or the last two hours of trading usually have the most volume and distance of price action ranged? Why is that? Well, for one reason, big-money professionals are most active during those periods, most of the time. Obviously there are exceptions… anything can happen at any time in any financial market. However, the norm is active tapes early and late, quieter periods of consolidation in between. That’s no secret to anyone who has traded for some period of time.
If trading “part-time” during the higher volume periods is part of the professional trader’s plan, why wouldn’t that be part of every retail trader’s regimen? If professional traders are content to quit trading after hitting a profit target and spending the balance of that day golfing, boating or whatever rich traders do with their spare time, why not you too?
It’s probably safe to say that most aspiring traders decide to trade for a profession with money and time freedom in mind. Trading allows one to work fewer hours for greater potential pay than most other jobs or careers. Most of us get in for the chance to work less hours in condensed fashion for more reward than the process of exchanging time for money in linear fashion. How does that initial objective ever morph itself into what is actually market obsession and even quasi-addiction for many traders as a result in the end?
Most retail traders want to be Jim. They want to make the kind of money Jim did/does. The evolution from trading one contract to two to five to ten does not involve frenetic scalping = panic trading while the account is small, and switching to a different mode once capital size has grown. The quickest path from small to modest to large-account trading is same from beginning to end: cut losses short, let profits run bigger at least 2x (if not more) than losses and quit trading too soon. Instead of lamenting about being up +$250 in the morning only to finish a choppy afternoon at -$150 before trade costs, quit while acceptably ahead.
When volatility is high or sessions are trending, enjoy the bonus opportunity. When conditions are usual and price action dulls down past the first couple of hours following successful trades, share your stories about profitable mornings and improving golf scores in the afternoon.
Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures and commodity markets. Mr. Passamonte’s trading approach uses proprietary chart patterns found on an intraday basis. Passamonte trades privately in the Finger Lakes region of New York. Click here to visit CoiledMarkets.
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