The Best Trader I Have Ever Known

• Posted by Robert Sinn
• on April 19th, 2012

For roughly six months during 2006 I worked as a proprietary trader at a small but well known prop trading firm in South Florida. It was a small office with about a dozen experienced traders (some much more than others but there were no newbies) who traded anywhere from $500,000 to $5 million accounts. The guy who invited me to work in this office was also a veteran trader himself who happened to also be one of the firms managing partners. His name was Mark and he also happens to be the best trader I have ever personally had the pleasure of witnessing with my own eyes.

The time period between 2006 and early 2007 was a special market environment for equities:  There were many individual equities and sectors that were in the midst of huge bull advances/trends. However, simply because a market is experiencing a large bullish advance does not mean that there are hundred dollar bills falling from trees. After all, has every trader who has traded $AAPL or $PCLN this year made buckets of cash? Simply stated, good market conditions with plenty of strong trends and new money flowing into equities are akin to a runner enjoying cool temperatures with the wind at his back before setting off to run a marathon.  However, just as cool temperatures and a strong tailwind do not ensure that a runner will finish the race – a strong uptrend and bullish equity market environment does not ensure that a trader will be profitable.

Make no mistake, an inept trader will lose money in all market environments – it will just be a lot easier to see who is “swimming naked” in difficult market conditions. One of the favorite stories of “seasoned veterans” when I began prop trading was to recount the 1999-early 2000 NASDAQ bubble period. Mark’s favorite story was of the used car salesman who passed his Series 7 and within months was buying $500,000 worth of tech stocks each morning before flipping them for $10,000+ gains less than an hour later. On those rare occasions in which his basket of stocks did not go higher by lunch time this trader would simply continue to hold until his holdings were back in the green – this went on for months until he was permanently carried out of the market in multiple “body bags” by one of the more remarkable gap events in market history:

 

Evidently the “used car trader” was long over $1,000,000 of $MSTR when the stock was suddenly halted -the ensuing 50%+ gap lower inflicted catastrophic losses on him and the prop trading firm (he wasn’t the only trader on the desk caught in MSTR). The lesson to be learned (and repeatedly emphasized) by this story, and many stories like it, is that any moron can get lucky and make money for a few months in a raging bull market but they NEVER keep it.

Mark made money during the tech bubble but he was far from the most profitable trader in his office. However, during 2006-2007 his results were far superior to any trader in the office (or anywhere else for that matter) – here are a few of his stats that I can personally attest to having witnessed:

• 21 consecutive profitable trading days
• largest single day drawdown during 2006 of $4,500 vs. largest single day gain of $21,500 (superb ratio)
• 18 consecutive profitable months

Mark had many characteristics and personality traits that set him head & shoulders above the crowd of traders (some of which I have managed to replicate in my own trading, others which I have not):

• He was NEVER emotional – if he took a $2,500 “rip” on a trade he took the loss and moved on, there was no emotion in his game
• Mark had an uncanny ability to let winners ride while cutting losses short (on individual trades but also more importantly on trading sessions)
• He was very well capitalized and never put himself under pressure to make money on a given day/week/month (the pressure that most new traders put themselves under to make money is often highly understated)
• He had a fairly precise process of identifying high probability trade setups in addition to a great deal of experience “reading the tape” – once he took the trade he had an even more precise process which allowed him to manage risk and let profits run

There is already a wealth of information on identifying “in play” stocks (news related with well above average volume), therefore I won’t delve into this subject any further. However, I will simply state that the real skill is in identifying the stocks which will trend intra-day due to strong institutional order flow – there was no better trader at finding these types of stock setups than Mark. Once he was in a large position that was “working” (solidly green P+L) Mark had a special technique for allowing his trades to work: He would get up and leave the office.

More on the best trader I have ever known tomorrow….

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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