CHAPTER 2
Prop Trader Secrets
Discover What the Best Have in Common

Through our journey of interviewing successful prop traders, we’ve uncovered some fascinating traits and practices that contribute to their success. Our conversations were filled with illuminating moments, revealing a mix of grit, strategy, discipline, and community spirit that fuels these prop traders’ achievements. From early hustles to mastering a single instrument, and from leveraging trading communities to refining their techniques, these insights are shared with the hope of helping you become a better trader.

STRONG WORK ETHIC AND PERSEVERANCE

By starting work at a young age, some as early as middle school, many of the traders developed a strong work ethic and a deep appreciation for the value of money. Their early ambitions instilled discipline and the importance of perseverance – key qualities for making and maintaining profits in the trading world. Starting with small accounts, they ambitiously grew and stacked them into larger ones, showcasing their consistent and conservative approaches. Their journey from small beginnings to significant successes is a testament to their drive and ingenuity.

CONSISTENCY WITH INITIAL TECHNIQUES

It’s remarkable that many of the traders we interviewed have stuck to the same general trading philosophy they learned at the start of their careers. While their techniques and tactics have evolved, their core focus remains on the original concepts that sparked their interest in the market. For example, traders who began with fundamental analysis and trading news events still rely on these methods. Those who started with technical analysis, focusing on volume and price action, have stayed true to these approaches. Likewise, traders who initially learned to trade cycles and breakouts continue to refine and use these strategies over time. This shows that you can be successful with a variety of trading methods, as long as you remain consistent and dedicated to mastering your chosen approach.

YOUR FIRST FEW TRADES SET THE TONE FOR YOUR TRADING DAY

Trading is an emotional roller coaster, and many of the traders we’ve interviewed know that the first few trades of the day can set the tone. They carefully pick their initial trades, aiming to build a cushion early on. This smart move gives them the confidence and financial buffer to let part of the trades run or take bigger positions later in the day, knowing they’ve already pocketed some profits. If those early trades go south, they often spend the rest of the day trying to claw back their losses, which can affect their mindset and emotions. This scramble to recover can lead to impulsive decisions and high stress, ultimately hurting their performance. By prioritizing cautious and strategic early trades, traders can dodge this downward spiral and stay calm throughout the day.

FOCUS ON ONE INSTRUMENT OR STRATEGY

Many of the traders we’ve interviewed achieved success by zeroing in on a single trading instrument. By focusing exclusively on one asset, they develop an intimate understanding of its movements, reactions to news, optimal trading times, and more. Other traders prefer to focus on a single strategy to trade on a small number of instruments. This laser focus reduces the stress of constantly reevaluating different instruments and hunting for new opportunities. Plus, it gives these traders lightning-fast reaction times because they know what they trade so well. This approach enhances their ability to select trades with greater confidence and manage their positions and profits effectively.

SEEKING CONFLUENCE IN TRADES

Confluence is also important to many of the traders we interviewed. They hunt for multiple factors that support a specific trade direction or level, like technical indicators, volume patterns, and prior highs or lows. Finding confluence boosts their confidence in the setup and helps them decide whether to take a smaller or larger position. When several factors align, these traders can make more informed and confident trading decisions.

PREFERENCE FOR BUYING CHEAP

Everyone loves a good deal, and the traders we interviewed are no exception – they don’t like to chase price. Instead, they prefer to buy at a discount, often waiting for a pullback before jumping into a trade. This smart tactic boosts their chances of success, reduces risk, and maximizes value. Many of our traders look for breakouts and then wait for a retest of the breakout point before getting in. By doing so, they enter trades at more favorable prices, enhancing their risk-to-reward ratios. This disciplined approach not only helps them be better positioned but also fosters greater patience and strategic thinking in their trading practices.

THREE STRIKES RULE FOR BAD DAYS

In baseball, a player steps away after they miss any pitch that is in the strike zone. Many of the traders we interviewed use a similar three strikes and you’re out rule for their trading. If they strike out with three consecutive losing trades, they step away from the market to avoid further emotional and financial damage. This rule helps them stay disciplined and prevents a bad day from turning into a major loss. By taking a break after a rough patch, they keep their cool and come back stronger the next day, ready to hit the market with fresh energy. This straightforward yet powerful strategy ensures that a streak of bad luck doesn’t knock them off their game.

LOWER RISK-REWARD RATIOS IN DAY TRADING

Many of our day traders are successful because they use risk-reward ratios, such as 1 : 1 or even lower. While higher reward, low-risk setups sound great in theory, they’re rare in day trading. Consistently successful traders know that the real secret to success is maintaining a high win rate. Most of their strategies focus on high accuracy, getting in and out of trades quickly. Protecting profits is also important, so these traders might use emergency stops with a risk-reward ratio of less than 1 : 1. However, they will move their stops up swiftly as the trade moves in their favor, locking in profits and minimizing losses.

DAY TRADING FOR CONSISTENCY AND CASH FLOW

Day trading, or scalping, is the primary focus for most of our traders. Since trading is their main gig, these traders’ top priority is to generate steady cash flow and consistent results. Even those who lean toward longer-term swing trades know the importance of consistency, liquidity, and financial stability. If you dream of becoming a full-time trader, you’ll need a strategy that provides regular cash flow to cover expenses like rent, bills, childcare, and tuition. A useful tip from one of our traders is to try living off your trading income for a while to see if it’s enough. Or aim to match your weekly or biweekly paycheck with your trading profits.

MANAGING SUCCESS EXPECTATIONS

Traders with high expectations often put unnecessary pressure on themselves. Good trading shouldn’t be about expecting a certain profitability since there are factors we cannot control. In the end, one can only take what the market gives. Trying to force positive results beyond that is pointless. Start with the expectation that it’s going to be really hard to stay consistent in trading. It will not get anyone rich overnight. It’s also been emphasized by one of the traders in this book that success comes from expanding your time horizon. Instead of looking for results in the short term (day, week, or month), traders should let the odds play out in their favor and expect results to come only in the long term (quarter, year).

ABILITY TO LEARN AND ADAPT

Mistakes present a great learning opportunity. Traders who stay successful over many decades are lifelong students. They are finding new ways to learn about the market and themselves. They are also highly adaptable. When the market context or other conditions change, these traders are quickly looking at how to pivot. While some would be afraid of change, successful traders look to the future instead of worrying about the past. Whether through a wide collection of books or by talking to others in the industry, the traders interviewed in this book always stay curious and continue evolving.

SELF-AWARENESS AND REGULATION

Knowing who you are and aren’t presents an edge for many of the traders interviewed in this book. Consistently profitable traders know their trading strategies and personalities inside and out. Some of the traders we’ve interviewed have a very specific trading style they like and don’t deviate from. Others know when they’re not likely to perform well and add trading rules that match themselves better. It’s important to be patient with who you are. One can always get better, but it takes time. Self-awareness is also a great way to be more disciplined, since you’re more likely to find your pitfalls early.

CUTTING LOSSES INSTEAD OF TRADING MORE

Being profitable in trading isn’t about finding more winning trades. It’s about minimizing losses that eat into your profits. The traders in this book have shared trade and risk management techniques to reduce their losses. Small mistakes repeated can often lead to large changes in results over time. Tracking and reviewing trades is also one of the key habits to see...