Hi @RealPropTrader, thank you for doing this written interview with us today. It's not every day that I have the chance to talk to someone working at a prop firm, even less as Head of Trading.
I'm particularly interested in what brought you from more traditional markets to Crypto and in learning more about you, as I share many of the values you've recently been sharing on Twitter.
‘The beginning stages of an edge could be if you’re able to estimate where those pain prices might be beforehand, then react to them in real-time profitably.’
- RealPropTrader
Q) I have many questions for you, as I never got the opportunity to discuss them with someone in the industry. First, what career path did you choose to end up in such a position, and what are your daily activities? This is not an ordinary job, and I'd like to know how one can become Head of Trading.
I took an equity trading internship during university and was hooked from the beginning. Once I graduated, I applied to one of the few reputable prop trading firms focused on futures in my city and have been with them for 10 years now. Over the years they’ve entrusted me with more and more responsibilities.
Q) Could you tell us a bit more about the firm you're working with? I read that you received thousands of applications. Is it true that prop firms prefer recruiting people who never traded, as it's easier to train them rather than make them unlearn their bad practices? You mentioned that the great candidates built their own tools, which suggests more curiosity and creativity. What makes the difference between an average profitable trader and a great trader?
Our prop firm is a large player in the traditional legacy markets and branched out to create a crypto desk in 2019. While it is easier to train someone without any bad habits, experienced traders with a track record and show passion for the market are what we mainly look for. There is no single archetype for a great trader. Skills like discipline, self confidence and resilience are important. A great trader is someone who’s always adapting and looking towards the future. Someone who is curious enough to ask questions and independent enough to find the answers. Someone who is able to recognize an edge, take full advantage of it while it exists and move on once it stops working.
Q) Are you encouraging algo trading more than discretionary trading and why?
We encourage any style that suits the trader’s personality and strengths. Algo trading comes with its own set of pros and cons. It’s not a passive income strategy that gets sold on Twitter. Unless you have significant resources and technical advantages, don’t try algo trading on sub-second timeframes.
Q) You say in your Twitter' Tradfi and Crypto'. I didn't even know there were firms that were doing both. Are there different Risk Management rules for these different asset classes? How do you deal with Crypto running 24/7 from a risk perspective?
Excellent question. For tradfi, the risk management model has been in place for many years and software has been developed to make that easier. The challenge in crypto is certain tools and monitoring systems that exist in tradfi haven’t been appropriately adapted to this new market.
For less experienced crypto traders, we’ve taken a different approach that uses the exchange mechanisms to our advantage. If an exchange offers cheap leverage, there’s no reason to keep all your capital at risk on the exchange. We can always re-deposit into an account. If a trader wants to risk $X,XXX on a trade idea, there’s no advantage to keeping more than what’s necessary to execute the idea on the exchange. There’s a few glaring disadvantages of doing so, including market risk (a nuke), technical risk (forgetting to put a stop) or counterparty risk.
Q) I saw on your feed that you’re still trading. How do you manage doing both trading and managing a group of traders?
The truth is that managing traders actually helps my own trading. From my experience, I know that certain times of the day its unprofitable for me to be trading. A productive way to avoid that is to schedule meetings during those time frames. As well, talking to other traders gives me a fresh perspective on the markets from different vantage points.
Q) Your Twitter feed is filled with great advice. One of my favorite tweets is 'One type of edge in the market is by finding max pain points where other participants are forced to liquidate their position. The art and beauty is in how YOU define a point of maximum pain'. I recognize myself a lot in this way of trading. I personally trade this way using volume and velocity.
Could you expand a bit more on your thoughts?
I think velocity in trading is something that doesn’t get talked about enough. If BTC goes from $25k to $20k, there’s a huge difference between it happening over a week vs. all that movement taking place in a market-wide nuke over 15 mins. Maximum pain points are where people are forced to do something, either taking a loss or getting liquidated. The beginning stages of an edge could be if you’re able to estimate where those pain prices might be beforehand, then react to them in real-time profitably.
Q) You wrote, 'Early in my career, I let myself go into a deep drawdown that took months to get out of because I was too stubborn to realize I wasn't in tune with the market. I refused to cut my risk size because I thought of myself as a "big" trader, which made the situation exponentially worse.' How do you use your experience as a trader to help the traders you're managing now when it comes to drawdown, and how do you make the difference between a drawdown and a strategy that no longer has an edge?
As part of the “new” risk management system, we don’t allow a drawdown to get to a point where it would put a new trader in too big of a hole. For discretionary traders, I would suggest trading smaller at the beginning of the year (or month) to build a cushion. Not only does that give you more confidence as you’re watching the account slowly grow, but it’ll also provide more leeway if you do run into a string of losers down the line. A growth curve should look more like a hockey stick than 90 degrees up and to the right.
Q) It's pretty common to read on Twitter, ' don't trade the news'. I don't do it myself, but I always wondered if players with larger capital and more data were doing it. What is the view of the firm regarding news trading?
For Tradfi, we don’t allow our traders to come into any big news event (CPI, FOMC, etc) with any positions on. That’s gambling, point blank. I will trade the volatility after news events, but usually only for a quick scalp. Personally, I’m not a great news trader so I don’t focus too much on it. That goes back to my earlier point about knowing your strengths and weaknesses.
As for crypto, it's very different as the news sources are more fragmented and not set at regular intervals. This allows a firm with more resources to develop an edge.
Q) You mentioned a few times that having 'immediate feedback' and specializing in a niche is very important. Could you give actionable steps to someone who would like to go down that road?
Specializing in a niche needs to mesh with your personality. If you’re a short-term trader who can’t do calculations on the fly, you’re going to have a tough time. If you like to read, consider specializing in research on smaller markets without many competitors. Get into all the discords, read whitepapers, understand token unlock schedules, follow everyone related to a project on Twitter, GitHub, and personal blogs. You’ll find diamonds if you dig deep enough.
Q) Finally, do you have one piece of advice for our readers who are just starting their trading journey? Crypto or traditional assets? Prop firm or personal account?
Start slow. Don’t view trading as a get-rich-quick scheme. Understand that it’ll take time to develop the skills necessary to succeed long term. Choose a trading style that fits your personality and lifestyle. Analyze your trades, see where you’re finding success, and if those trades are repeatable.
That’s a wrap for today, folks. It’s been a long time without any interviews, and when I got the chance to talk with @RealPropTrader, I took it! Many thanks to him for taking the time to share some nuggets of wisdom.
It would really mean a lot if you could share this article. One of my goals for 2023 is to have 5,000 subscribers on this Substack, and I would be grateful if you could help me grow it.
Until then, stay safe.
- Retail
PS: I had a few people reaching out to me on Twitter asking why they were not receiving my emails anymore.
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Prop Firms, Tradfi and Crypto
Awesome! Enjoyed this article!
Keep up the good work Retail 👊🏻
Thanks for this interview. We would very much like to read about your own experiences and recommendations about prop firms as well.