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7 trading tips to improve your consistency

By Mike Bellafiore, co-founder of SMB Capital and SMB|U

I was recently a guest lecturer at Stony Brook University, sharing my knowledge of trading and trader development with interested students. At the end of my lecture, a student approached and asked,

“How can I improve my trading consistency?”

We have polled our trading community for the top trading issues they would like to solve, and “trading consistency” consistently makes the list.

Many people have moderate success in trading. They have trades where they really get it—trades where they really have edge. And then they also have periods of frustration and losses. If only they could just keep the good trades and get rid of the bad ones.

Proprietary trader at SMB Capital
Proprietary trader at SMB Capital

At the professional level, this is what we work on. How do we make more of our good trades and trade them bigger, while mitigating our losing trades?

Here are some ideas for improving your trading consistency:

1. Bring a consistent “you” to markets

One of our more talented developing traders works daily with me on focusing on this goal. Create habits where your energy, processing ability, focus, preparation, anxiousness, physical fitness, blood sugar levels and fatigue are unvarying. Markets are volatile, information changes, data moves quickly into and out of markets, requiring fast and accurate judgement. If the “you” that you bring to the markets is not constant, then a different “you” is processing that different information. That combination heightens inconsistency. Bring a similar “you” to each trading session to reduce volatility in your trading results.

2. Build a “PlayBook”

In my second book, The PlayBook, I outline a training exercise to improve your trading, which we use to train our traders. What are the specific variables of trades that work best for you? Archive those setups and then study, study, study them. Trade them more often and bigger. This is your business. When you know your business, then and only then can you run it more consistently. It’s no coincidence that our (current) biggest trader was outperforming all his classmates when he was a junior trader when it came to archiving his PlayBook trades.

3. Increase your size consistently and with a process

Sizing trades properly is essential for consistent trading. Some get too big too quickly, which causes inconsistency and setbacks. Generally, I advise traders to bump up risk and size by 20% after each substantial period of success. One of our top two traders grew from a six-figure trader to a seven-figure trader by doing little more than trading his edge consistently and using a process to increase his trading size.

4. Create a report card for your process

The best traders work on themselves as much (or more) than they do on their trading. What are the things you need to do—and more importantly will do realistically—each day to improve? Grade your day on how well you completed the process that you created to improve daily. Our most improved trader became a consistently profitable trader when he focused on completing a self-determined daily process throughout the trading day. A side benefit is that you will also lower your trading stress throughout the day because your focus is on process.

5. Be open-minded and flexible

Many traders find it helpful to have a thesis (for example, Netflix (NFLX) is going to trade higher). That’s fine, but be open-minded to data that suggests your trade is wrong. Allow the markets to show you great risk/reward setups. Our top traders—who trade with size—work actively and intentionally on maintaining open-mindedness throughout the trading session. Some review their trading session’s performance with a focus on how open-minded they remained.

6. Be bionic

Spend time each day tweaking and building filters for your best setups. Let technology allow you to play more offense with your favorite plays. One of our top traders recently added custom filters, which contributed an additional $50,000 in net profit over a three-month period.

7. Adapt to different markets

Markets change, and traders must adapt to them. I trade much differently than I did when I began in the late 1990s. We train our traders differently today than we did when we began SMB in 2005. We are currently in a trading period of historically low volatility (measured over the long-term) where the market continually grinds higher. Accordingly, you must trade the setups that are rewarded. For example, pullback trades work wonderfully in this market. But these trades would have gotten creamed in 2008 and late 2007. More recently, market volatility spiked on fear over the French elections, the failure to pass a health care bill, and increasing tension with North Korea and Syria. These risks materially affect our short-term trading.

* No relevant positions.

More posts by Mike Bellafiore

How to trade stocks for a living: Mike Bellafiore

8 trading lessons from a proprietary trading desk

9 reasons to trade at a proprietary trading firm

5 lessons from the prop desk

A trading strategy newly stressed on the prop desk

The #1 issue traders want to fix on our desk