What It's Like To Be A Prop Trader: The Inside Info

An alma mater of mine owned a throaty Mustang back in college, played online poker for a job once, now listens to Skrillex, and enjoys karaoke nights. Not your ideal trader, huh? Fact is, he's dead serious about trading, picking up where I left off, and in just under two years has become quite successful. I caught up with him this week and asked him to share his experiences and advice with WSO to help you up-and-coming trading newbs and convince the S&T-types to reconsider. Grab a soda, eat some chips, and get comfortable and read the interesting things he had to say...

GMngmt: Tell us about yourself and your background.

My name is Chris. I'm 28, I have a bachelor's degree in Management Information Systems and I grew up in a technical household. Lots of computers and geekery; lots of technology. I've got one older brother and one younger sister. I lived in New York for over 20 years, went to college there and then moved to Charleston, SC because I wanted to be somewhere warmer and wanted to change it up and see what other opportunities were out there.


GMngmt: What compelled you to be a trader?

Chris: Freedom. I love the idea of being free. It's great to not have to worry about asking for time off work when you can just pack up your laptop and take your work with you. The allure of being able to travel the world and spend time with family and friends all over the world whenever I wanted was my main motivation. And of course, the money is a nice side effect.


GMngmt: Why did you decide to do prop instead of S&T?

Chris: I don't believe in working to make someone else rich. I am entrepreneurial by nature and I tend to become bored and slack off if I am not challenged enough. As a prop trader I can be my own boss, give myself my own raises, and take responsibility for my own actions. As an entrepreneur, if I fail at anything the only one to blame is myself, and I like that accountability.


GMngmt: Do you feel that you’re disadvantaged as a prop trader?

Chris: Not at all. The entire reason I went proprietary in the first place is that I wanted my income and my lifestyle to depend solely upon my own actions. That motivates me, and I think that's actually an advantage rather than a disadvantage.


GMngmt: So how did you get started?

Chris: I just dove right in. I didn't have a clue what I was doing. I opened up a brokerage account and just started buying stuff. The first stock I ever bought was a company that I worked for and I figured that was a good place to start because I understood the company. I lost a lot on that investment. Then I started to realize that fundamentals don't matter so much anymore, and so I started to read about technical analysis and charting. I took some classes on technical analysis and surrounded myself with professional traders who had been successful for many years, and I just absorbed everything I possibly could. I was obsessive. I started a blog, Chronicles of a Daytrader and documented my progress from day one. It really just snowballed and I found that I was really passionate about it, so it didn't seem like work for me to study and get better. I just wanted to do it, so I did.


GMngmt: It’s said that there’s a 90% failure rate for new traders, what puts you in the 10%?

Chris: Determination. I once asked several of the successful traders I know how they could continue to justify trading after they spent the first couple years of their careers losing tens of thousands of dollars. Their answers were all pretty much the same: they just knew they were going to be successful. They knew in the deepest parts of their guts and soul that if they just kept going, they would overcome any obstacles that they encountered. It's really the same as anything in your life. If you believe it enough and if you want it badly enough, you can do it. Personally, I'm a very systematic and disciplined person, so I apply that to my trading along with the internal message that there is no other option besides success.


GMngmt: Is anything you learned from college that's particularly useful?

Chris: Not really. I didn't study anything related to finance in college. I suppose maybe some of the technical/statistical courses I took made me more analytic which is useful to me as a technical trader, but in general I don't use anything from college in my trading. I had no idea I wanted to become a trader when I was in college. I was just screwing around, and then I just sort of fell into it later on in life and realized it was my calling.


GMngmt: I know you played online poker, does that translate at all into your RM?

Chris: I never considered R:R in poker; only probabilities. In trading I consider both probability and R:R. However, there definitely is a connection in terms of discipline. When you tilt in poker it's very similar to tilting when you lose repeatedly in the stock market. The same emotions I had to control in poker in order to avoid tilting and going broke are the ones that repeatedly resurface in trading. When I had a "bad beat" in poker, the feeling was very similar to the feeling I get now when I feel like I followed all the rules and the market just gave me a boot up the ass anyway. Managing those emotions is vital to my success as a trader.


GMngmt: I know you work full-time, so how do you day trade too?

Chris: I work a lot of long hours. I go in early, I leave late, and I trade when I have free time. Lately I've been doing a lot of swing trading too, so I don't have to sit there and manage my positions minute by minute. Also, as I've gotten better at trading and better at handling my emotions during a trade, I've found that it's easier for me to just set a stop loss and come back in an hour or so to check on what happened. When I first started trading I would watch things tick for tick, which made it a lot more difficult to trade and work full time, but now that I've calmed down a bit in my trading I can get by with only checking things now and then and managing my trades in a bit more of a controlled manner. Also, my job is project-based, so it's the type of thing where it really doesn't matter how long it takes me to do something as long as it's done by the deadline. So, if I know I have a project to complete, I can work my ass off and get it done really fast, get it done early, or whatever, and then I have more free time to trade.


GMngmt: Walk us through your daily routine.

Chris: Sure. Let's do this for the days that I am not working so we don't have work thrown into the mix also, then I'll mention that at the end. I wake up well before the market opens, always take a shower and eat a small breakfast so I am feeling refreshed and energized before I even think about trading. Sometimes I will go for a short run in the morning just to get out and stay active and to get my blood flowing. Once I am ready to start my day, I check out the daily gappers on the Stock Market Watch premarket section.These are the stocks that are going to be in play that day. I take a look at the overall market (SPY, RUT, DJIA, etc.) and decide if (in general) I am bearish or bullish for the day, or neutral in which case I will hold back and be more cautious when entering positions. I read the major headlines on Yahoo! Finance, Google Finance, etc. and check out the charts for major indices to get an idea for what the overall market sentiment is that day.

Then I throw all the gappers into my software and flip through the charts to pick out the ones that have significant premarket volume and toss the ones which are just gapping because of bad prints or just don't look interesting to me (too cheap, too expensive, not enough liquidity, bad sectors, that type of stuff). Then I will check the news on the remaining ones and quickly get an idea of why they gapped (earnings, positive PR, etc). I also use Stock Fetcher with several custom scans that I've written to pick out patterns I like, and I will usually have a few of those on my list from scans I've done the night before, so I will check to make sure none of those have gapped up or down and just make sure they are still in play. That's how I formulate my watch list. Throughout the day, I have a couple scans that I run: one that looks for volume spikes on a 5 minute time frame and a couple others that look for stocks in a certain price range that are up or down more than 4% for the day. Those scans constantly refresh and give me new ideas throughout the day. At the end of the day after I'm done trading, I upload all my trades to Trader Vue, go back and review them and make notes on what I did right, what I did wrong, and what changes I need to make. In this way I am continually collecting data and can go back to review any of my past trades at any time to see if I notice patterns of failure or success. Finding those patterns allows me to constantly tweak and improve my strategy. When I'm a work, I try to follow this pattern as closely as possible but obviously I give priority to my job, so I tend not to take as much risk when I'm at work in case I am interrupted with a surprise meeting or a phone call or something. At work, I am much more lax and only trade when I am able to focus on it because everything at work is already under control.


GMngmt: What type of setup [broker, info, services], strategy, or system have you found useful?

Chris: I'm a simple guy. I use a few websites, one or two brokers, and my own system that I have developed through trial and error (and admittedly, a lot of losses). I use Scottrade for swing trades and Ameritrade for day trading. That way I keep my accounts completely separate and I don't let a failing swing trade affect my day trades or vice versa. I don't use any kind of fancy newsreel services or anything like that. In general, I follow the crowd. The herd drives the market, and I study the herd to learn its behavior so that I can anticipate it. I've become really good at that over time, and so I don't need all these fancy paid services that a lot of traders use. I also use Google Chat pretty heavily to talk to other traders and just get ideas if I can't find stuff to trade. I know a lot of good traders and I talk to them daily, so I will literally just drop one of them a message and be like, "Yo what's hot today?!" and they'll come back at me with a few symbols I can check out. That interaction is vital to my success.


GMngmt: How has your trading evolved since you first traded?

Chris: I'm way more calculated now. I am systematic in my trading now and much more calm. When I first started I was crazy. I think I lost like $1200 in my first week of heavily day trading and I only had a $5,000 account. I used to get really pissed about losing even a tiny amount of money, so when I'd lose like $10 I would throw my hands up and tell myself this was all BS and that the market was rigged and no one could ever win at this game. I didn't consider reward to risk at all and I didn't have a defined strategy or system. Now I am a lot more disciplined. I understand that losses are just a part of trading and I've learned to accept that sometimes the market just does not provide you with any opportunities to make money. To be successful in this game, you've got to accept that and remember to never try to make a trade out of nothing. Sometimes there just isn't any opportunity, but the market will be there tomorrow and there might be 100 opportunities the next day. I've also become a lot more adaptable in my trading now, meaning that I have different strategies that tend to work under different market conditions. I never had that when I started and I think the only way you can really develop that is through trial and error and lots of experience.


GMngmt:Talk about some early mistakes that you overcame.

Chris: I definitely over-traded a lot when I first started. Once I had the freedom to day trade I felt like I always had to have a position in something. Some days I would rack up like $500 or $1000 in gains and I would look back at the end of the day and realize that I'd actually lost money because I spent so much on commission. So over-trading was definitely a big problem for me. Also, I used to chase my entries a lot. When I look at a stock now, if I can't get it within like 2-3 cents of where I think the entry was then I simply will not take the trade. I know now that there will be another opportunity around the corner, and chasing an entry up 10 or 15 cents is a recipe for disaster.


GMngmt: When did you know that you were going to be successful?

Chris: I think I have always "known." I am just a really ambitious person in general, and I have always had the idea that the only time you fail is when you're dead or you stop wanting success. For me, it's really difficult to stop wanting success, almost to the point of being obsessive and maybe even addicted to the idea of it, but that drives me and it always has. In a more technical sense, I knew that I would be successful with trading when I could look back at the last 6 months and see that on average I was making money consistently, even if it was only a small amount. I knew that if I could make $50 a day and do it every day or almost every day, all I had to do was use the exact same strategy with the same exact rules and increase my positions sizes by ten times and I'd be making $500 a day.


GMngmt: Tell us a time when you really blew up a trade?

Chris: Two come to mind. The same thing happened in both situations: I lost once but I felt like I might have exited a little too early or like I was too tight with my stop or something, and so I re-entered. Then I lost again and started to get pissed at the stock, so I wanted to get revenge on it! In both situations I lost my emotional control and all my rules went out the window. I just started buying and selling with no rules and no regard for risk, taking repeated losses on the same stock over and over. One of them cost me like $800 and the other one was only about a $300 loss, but at the time I was only making like $50-75 a day so those losses were enough to eat up a week or even a month's worth of income.


GMngmt: What's your absolute favorite thing about trading?

Chris: It's a toss up for me. I love the freedom it gives me to be able to go wherever I want whenever I want and be with family or friends while still being able to get paid. I love the fact that I don't need to build up vacation time if I want to take a vacation, that I don't have to worry about stupid corporate rules saying you only get one raise per year and it's capped at 4% by human resources. I love the fact that I don't have to deal with annoying, unambitious co-workers who are content with just slaving away their whole lives until they're 75 and who might never really get to experience all that life can be. However, I am also definitely a sucker for the adrenaline rush I get when I time an entry so perfectly that I literally make hundreds or thousands of dollars in a matter of seconds. There's just something about that feeling you get when you sit back and go, "Holy shit...I just made the equivalent of $7500/hour" even if it was only for a couple of minutes. It's like playing a video game that never ends and the better you get at it the more awesome your life can become.


GMngmt: What's do you hate most or dislike?

Chris: Definitely the stress and the emotional roller coaster you go through. It can be really, really hard to handle the emotions that arise when you have a series of bad losses and it just feels like nothing is going your way. There is obviously a lot of risk in this game, and while it's awesome to be your own boss, it also sucks to realize that you could blow up your entire life savings in a matter of seconds just because you got pissed off and clicked one too many times. In my earlier days of trading I had situations where I lost on one trade and was so annoyed by it that I immediately just entered into another one without even thinking about it, trying to make my money back, and even as little as 1-2 seconds later realized that it was a bad decision, but that it was already too late. The software I use as a professional trader is so fast that even if you wanted to cancel your order because you changed your mind half a second after you clicked buy, you couldn't do it. That speed and power is scary and the stress of knowing you have to manage your risk to avoid the disasters it could cause can really take a toll on you.


GMngmt: Where do you see yourself in a year. Five years?

Chris: Well, right now I am still working full time but that has really become a burden on my trading so I am going to be changing over to a full time professional trader in the near future. I'm also working on setting up an LLC and plan to offer educational services to help people who don't know anything about this stuff get started with it. In a year I'd like to see that business take off, and in five years I'd like to have built enough of a nest egg that I can start relaxing and just enjoying life. I work extremely hard at everything I do, to the point where people actually get annoyed with me because I never stop pushing for more and more success, and it would be nice to be able to just chill out in a few years and enjoy the fruits of that labor. Though I think that part of my personality will always be there, even if it's only temporary it would be cool to be able to just put it on hold and enjoy what I've created for myself for a little while. Also, I plan to eventually run a charitable organization driven by a community of successful traders who want to leverage the power of the market to help make the world a better place.


GMngmt: For newbies, where can they get started and what advice would you give?

Chris: Well, the bottom line is you just need to jump in and do it. My first recommendation is to make sure that you're financially stable without trading before you jump in and try to day trade or even swing trade. It doesn't really matter if you have a backup plan or an education or whatever, but I think since trading is such an emotional roller coaster it's good to have something you could fall back on in case of disaster, even if it's only temporarily. Obviously check out my blog at Chronicles of a Daytrader and keep an eye out for my upcoming educational services and courses which should be offered in early 2014. I will also have a book coming out in late 2014 that details my strategy and the journey I took to go from knowing nothing about the market to becoming a successful professional trader. Just jump in and start reading everything you can. Be obsessive about it. There are tons of good resources out there on the net that can help you get started, but in this game the only thing that will really teach you is experience and the pain of losing money, so you just have to do it to get good at it.


GMngmt: Is there anything thing you’d like to add?

Chris: Trading for a living is incredibly difficult. It's not for everyone and it's definitely not easy. However, with great risk comes great reward. If you are the type of person that doubts yourself often, trading might not be for you, but if you believe in yourself and you really want it badly enough, I think that anyone can do this successfully.


If you're a twit, follow Chris at @ckz8780 and if you're more of an analyst check out his trades at Trader Vue.

THANKS FOR READING!


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