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Month: March 2024

How This $20K Funded Trader Cracked The Risk Management Code!

Posted on by Carlo Aguinaldo

“Can’t play the game if you got no money, stay alive and live to trade another day.”

Anthony C., 24 years old, from the USA.

Anthony has successfully passed our Mini Buying Power program, and he is now TTP’s funded trader managing a $20K account, or as we call it, he is a true “Stock Star”.

Every time he reaches 5 consecutive winning days, we will boost his buying power and max exposure.

We spoke with Anthony about his trading plan, insights, and lessons gained while trading in the markets and our platform as a funded trader.

Anthony’s evaluation statistics

Q&A With Anthony

Tell us a little bit about yourself

I am 24 years old with a full time job and trade part time, the markets have always excited me since high school. I now I been participating in the markets for 6 years now and aspire to go full time by the time I’m 30. While obsessed with the markets I like to unwind by going to music festivals, food festivals, travel to new places and enjoy throwing the weights around in the gym.

How long have you been trading?

6 years

Briefly describe your trading plan and how it contributes to your success

I am day trader, primarily short biased, I scan my watch list of momo names every night, write trade ideas on names I see possibly setting up (based of my edge and preferred price action) once the market I wait until my top ideas come into play, execute my trade idea and review. Plan, execute, improve, repeat.

Share with us a challenge you faced in your trading career and how you overcame it?

Taking a massive loss shorting a low float Chinese name, I got caught in a halt and when the ticker opened I was down near 100% and blew my account, in minutes. Psychologically it was tough but I’m grateful it happened early in my career and I didn’t have much responsibilities like a mortgage, kids etc. And I previously had the data that I could make money so I gradually built up my confidence again. I just got too cocky and was irresponsible trading the wrong name. Lesson learned: manage risk.

How did you adjust risk management to your trading personality?

I’ve always been a risk taker. So when I started off, I threw my risk around with no regard and would see my PNL flash up and down huge, it would make my stomach turn. Even when I won. So I knew I had to scale back and I gradually build up my risk tolerance. I found everyone has their own number they’re okay risking, it takes lots of time and proven trading system to build up risk confidence .

Describe a key moment in your trading career

Trust my trading plan and process. Follow your trading plan, it may not always pan out the way you expected or visualized but that’s where risk management comes into play. Can’t play the game if you got no money, stay alive and live to trade another day.

How long did it take for you to become a consistent trader, and what aspects did you change for that?

4 years and Number 1. Manage risk Number 2. saying I was to trade stocks is like saying I want to play sports. Okay, what sport (market)? Position (what type of trader)? Your strengths(your niche and edge)? I had to find what type of markets and names fit my personality (momo names, usually small caps) and what type of trader (short seller, majority of the time) I wanted to be.

What is your mental/psychological strength, and how did you develop it

Chat with traders, any of their episodes on trading psychology, any Mark Douglas material and most importantly, entrepreneurs that inspire me like Andy Frisella, Bedros Keuilian, Ed Mylett, they’re huge on building metal toughness and personal excellence.

What was your strategy for successfully passing the evaluation phase?

Tightening risk based off the account rules and parameters (took me a minute to adjust bc I was so use to trading larger size compared to rules). Having stop losses and locking myself out or re evaluating my trading when I get half way to max draw down on the day. Cutting loser and adding into winners too.

How has Trade The Pool improved your trading?

It challenges you to re evaluate how you manage risk and how good is your edge when parameters are put into place.

What would you recommend to someone who is just starting with us?

Get familiar with how to operate the trading platform on a demo account, understand and respect all the rules for evaluations. And have a trading system and manage your risk (can’t emphasize that enough).

Share online resources that were/are significant in your trading development.

Huge shoutout to Nathan Michaud from Investors Underground, Jtrader, Brian Lee and Lance Breitstein and Tom Dante. You can search them all up via X (twitter) and YouTube.

Is Trading CFDs Better Than Trading Stock?

Posted on by Ophira Top

CFDs vs. Stocks – Introduction

As participants in the financial markets, investors and traders are constantly on the lookout for vehicles that offer the best potential for profits. Among the myriad options available, trading CFDs (Contracts for Difference) and trading stocks stand out as two of the most popular choices.

Each method comes with its unique set of advantages and disadvantages and it’s up to traders to choose and study a method suitable to them, based on their risk tolerance, strategy, and objectives.

In this article, we’ll discuss the main pros and cons of CFDs vs. Stocks trading so that you can evaluate what’s better for you as a trader and for your strategy.

Let’s start by looking at what CFDs are and what differentiates them from one another.

Key Notes:

  • Stocks represent ownership in a company.
  • CFDs are derivative contracts

What are CFDs and Stocks?

Before we delve into the advantages and disadvantages, it’s crucial to understand the basics of each trading method.

Stocks

Stocks are assets that represent ownership in a company.
When you buy stocks of a company, you are actually buying a portion of that company (a share) while speculating on (and rooting for) its future growth and success.

Naturally, as the company’s value grows, so does the value of each of its shares; stock traders and investors make profits through the stock price appreciation and the dividends that same companies pay quarterly to their shareholders.

CFDs

CFDs, on the other hand, are derivative products that allow traders to speculate on financial markets such as stocks, forex, indices, commodities, and crypto without owning the underlying asset. Rather than investing in the company directly (as for stock trading), CFD traders speculate on whether an asset’s price will rise or fall in the future.

Essentially, a CFD is a contract between a trader and a broker to exchange the difference in the price of an asset from when the contract is opened to when it is closed.

To compare stock and CFD trading, and identify the best option for you, let’s take a quick and schematic view at their main pros and cons.

CFDs vs. Stocks: Pros and Cons

Pros and Cons of Trading Stocks

Pros

Ownership Rights

Buying stocks gives you ownership in a company, including voting rights and dividends, which can be particularly appealing for long-term investors.

Potential for Long-Term Growth

Historically, the stock market has offered significant returns over the long term, making it an attractive option for building wealth.

Transparency and Regulation

Stock markets are highly regulated, offering investors a level of protection and transparency not always available in derivatives trading.

No Leverage Risks

Traditionally, stock trades are made with large capital and without leverage which means investors are not exposed to the risks of losing more than their initial investment.

Cons:

Higher Capital Requirement

Unlike CFD trading, buying stocks outright typically requires more capital, potentially limiting the ability to diversify across many stocks or asset classes.

Less Flexibility in Short Selling

Short selling stocks can be more complicated and expensive – especially for retail traders – due to borrowing fees and restrictions.

Market Accessibility

Accessing international stocks may require multiple brokerage accounts, which can somewhat complicate the trading process.

Stamp Duty and Taxes

Depending on the country they trade from and its legislations, stock traders often incur stamp duty (or equivalent) and other transaction taxes. This increases the cost of trading and reduces profit.

Key Notes:

  • Stock and CFD trading’s pros and cons should always be considered before creating a strategy.
  • Leverage can mean higher profit but also higher risk and larger losses.
  • Day traders – and small timeframe traders in general – should also consider the extra cost incurred while trading CFDs
  • The stock market is better regulated than the CFD’s but it usually also means higher tazation.

CFDs Pros

Leverage

Let’s start with the big one. CFD trading offers access to higher leverage than traditional trading. This allows traders to open larger positions with a relatively small amount of capital, potentially increasing returns on investment. However, it’s important to remember that while leverage can amplify profits, it can also magnify losses.

Market Access

CFDs provide traders with easy access to a wide range of markets (including international markets), without the need for multiple brokerage accounts. This allows for diversified trading strategies across different asset classes.

Going Short is Easy

Unlike stocks, where short selling can be cumbersome and expensive, CFDs allow traders to easily take short positions and profit from falling markets.

No Stamp Duty

In many jurisdictions, trading CFDs does not attract stamp duty since you are not taking ownership of the actual assets, which can result in cost savings.

CFDs Cons

Risk of Leverage

While leverage can magnify profits, the downside risk is significantly higher than trading without it. It’s also possible to lose more than your initial investment, especially in volatile markets.

Overnight Charges

Holding a CFD position overnight can result in charges, which can eat into profits over time, making it less suitable for long-term investing.

Market Spread

CFD traders must pay the spread, which is the difference between the buy and sell price. These costs can impact profitability, particularly for those trading the smaller time frames

Less Regulatory Protection

In most countries, CFD trading is less regulated than stock trading, potentially exposing traders to risk linked to their brokerage company as well as the volatility of assets’ prices

Choosing between trading CFDs and stocks depends largely CFDs offer leverage and easy market access but come with higher risks, especially from leverage and less regulatory oversight. Trading stocks, while generally requiring more capital, provides ownership, potential for long-term growth, and greater regulatory protection.

The picture that emerges from all of this is that the right choice between the two should depend on the trader’s risk tolerance, strategy, and goals…. however… records tell us a whole different story.

CFD’s over Stocks

The number one reason retail traders choose to trade CFDs instead of stocks is the leverage.
There is no doubt about it and, to be fair, it’s understandable. It is definitely wrong, make no mistakes, but it is understandable.

Traditionally, retail traders have a much smaller account than smart money. Statistics show that a great number of retail traders have accounts under $1000 and, since they are the ones who tend to use the highest leverage, it also shows that around 80-90% of them lose it within the first year.

Stocks over CFD’s

The number one reason why retail traders choose to trade stock rather than CFDs is for their reluctance (and maybe fear) to use leverage in their trades and having to learn the right risk management skills required to limit the associated risk. This, however, often may mean that these traders won’t see their accounts grow by much for a very long time.

The solution for both these types of traders, – even at the cost of repeating myself – is Trade The Pool.

With a stock trading prop firm like TTP behind you, you won’t have to worry about your account being too small to make a profit because you’ll be trading TTP’s money. And I assure you, their account is not small.

ttp - a prop firm for stock traders

You won’t have to worry about using astronomical leverage to make yourself some money, TTP has thought of that. TTP shares their pool of funds with their traders so that you’ll always have enough bullets for your trading guns.

Risk management? TTP made that easy too.
You’ll be given clear and simple money management rules to follow which, even on their own, will make you a much better trader. TTP publishes great articles and tutorial material that can teach anyone the ins and outs of stock trading. You’ll be invited to regular live streams where you’ll be able to watch and interact with TTP staff. Just… just take a look at the website now, there is so much more!

Breaking news about retail options trading

Posted on by Ophira Top

Introduction

Until very recently, Options Trading used to be a popular choice for retail traders hoping to make the most out of their money in the financial markets and this is not surprising.
With prices way lower than the underlying assets, higher leverage, and premium payments, Options trading offers the potential of making a much bigger profit than just trading stock.

Why is it, then – it comes naturally to ask – that retail options trading is decreasing in popularity so fast? And, if it is dying, what’s killing it?

In today’s article, we’ll have a go at answering those questions by discussing what Options are and how Options Trading works and explaining why options trading is no longer the best option for trading.

What Are Options?

An Option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. The seller of the option, in turn, assumes the obligation to buy or sell the asset if the buyer decides to exercise the option. On paper, Options Contracts are a complex but fascinating instrument, offering traders the potential for large profits in both rising and falling markets. In reality, things are a little different.

The idea of creating the first forms of options contracts came from the will to help farmers protect their livelihood against potential declines in the price of their product while, at the same time, protecting buyers from sudden price increases. In other words, one might say, Options Contracts were born as a simple form of insurance.

However, In more modern times (since 1973, to be exact,), Options have become a financial instrument of their own, representing a significant portion of institutions’ financial transactions and gaining one of the top spots as contributors to market efficiency.

options trading book

Traders and institutions began to buy, sell, and exchange Options Contracts as a way of protecting their portfolios against market volatility or edging a large position and exposure in an asset.

As it often happens, it didn’t take long for the sharpest-minded traders and institutions of the time to realize that, by trading Option Contracts, they could profit on the leveraged price volatility of the contracts even without any intention of ever buying or selling the underlying asset. Simply put, individual traders and institutions begin to speculate on the change in the value of the contracts rather than the underlying asset.

To understand how Options Trading turned out to become an incredible money-maker for large traders and institutions over the years and, at the same time, such a horrific bank-breaker for retail traders, we need first to understand how Option trading works.
Let’s take a look.

Key Notes:

  • Call Options: bought with the expectation of rising prices.
  • Put Options: bought with the expectation of falling prices.
  • Strike Price: the price the underlying asset can be bought/sold.
  • Expiration Date: the day by which the underlying asset can be bought/sold

How does Options Trading work?

As we mentioned,  traders can profit from options trading with a focus on the basics. Traders can make money in options trading mainly through two strategies: edging and speculation.
Unsurprisingly, while smart money has generally excelled and enjoyed unbelievable profits from both strategies, most retail traders fall victim to the allure of high leverage and potential for larger gains for failing to consider and manage the high risk attached.

There are two types of Options: Calls and Puts.

Call Options

Suppose a trader believes the price of a stock is going up. They might buy a call option, which lets them purchase the stock at today’s or a specific price (strike price) on or before a certain day (expiration date), even if the price goes up in the future.

If the stock price does go up, they can buy the stock at the lower price they locked in, sell it at the higher current market price, and pocket the difference as profit (after subtracting the cost they paid for the option).

Put Options

If the trader believes a stock’s price will go down, they might buy a put option. This gives them the right to sell the stock at today’s price, even if its market price falls. If the price does fall, they can buy the stock at the lower price, sell it at the higher price guaranteed by the option, and make a profit (again, after deducting the option’s cost).

It all sounds quite nice and simple… until you add the high risk involved, that is.

One of the main reasons why options trading wreaked havoc among so many retail traders as opposed to (most) institutions is the complex nature of options contracts.
Retail traders with limited resources and small trading accounts are often more prone to accept a higher risk to leverage their dollars hoping for larger gains.

Options contracts typically require a fraction of the capital needed to trade the underlying asset which means that small traders can amplify their gains. However, a high degree of leverage means that a small movement in the underlying asset can result in a large gain as well as a large loss in the option price. This leverage, of course, amplifies both profits and losses, making option trading a high-risk endeavor, especially for smaller traders investing their own money.

Additionally, options have an expiration date, which adds a layer of complexity and risk to trading them. As if predicting the future direction of price wasn’t challenging enough, retail traders trading Option would often struggle to accurately predict the direction of the underlying asset within a specific time frame which, more often than not, led to Option expiring worthless and catastrophic losses.

Furthermore, as if this wasn’t enough, contrary to smart money, less experienced retail traders often fail to realize that, unlike trading stock or ETFs, Option prices are influenced by a variety of factors such as time decay, implied volatility and even interest rate.
Many retail traders find it difficult to accurately predict these variables and adjust their strategy accordingly and in time.

Key Notes:

The three main risks in Options Trading:

  • Leverage: Leverage amplifies profits as well as losses.
  • Expiration Date: Traders need to predict price volatility within a certain period
  • Contract price: the price of the underlying asset is not the only factor that influences the contract price.

Prop Trading Killed Options

Despite the generally dire results, till not long ago, there weren’t many other ways available for small traders to leverage their trading money and gain worthy returns other than trading Options until Prop Trading Firms became available.

It wasn’t the high risk that persuaded retail traders to stop trading Options and it wasn’t the hundreds of millions of dollars lost from traders’ home offices around the world; it was the simple fact that Prop Trading Firms – like Trade The Pool – started to offer traders a much better option than Options.

As a Prop Trading Firm, Trade the Pool offers a more structured approach to trading. Proprietary trading firms provide retail traders with access to training and educational material, charting, analysis and risk management tools, and – most importantly – capital to trade with.

This can help retail traders develop the skills and discipline needed to succeed in the markets without the need to compensate for the lack of capital with extremely high-risk positions.

PTT also has strict risk management guidelines and rules in place to help protect traders from excessive losses. Traders trading with prop firms will have defined risk parameters and daily loss limits, helping to mitigate the potential for catastrophic losses so common in Options Trading.

ttp - a prop firm for stock traders

In Conclusion

Overall, while option trading can be a profitable venture for experienced and institutional traders, it has also been demonstrated to be excessively risky for retail traders, especially those who are new to trading.

Prop Trading Firms such as Trade The Pool, offer a potentially safer and more structured way for retail traders to gain exposure to the markets, providing the resources and support needed to succeed.

By trading with Trade The Pool, traders can benefit from access to capital, training, and risk management tools that can help them navigate the complexities of the financial markets and increase their chances of success.

So, Options or Prop?
It’s a no-brainer, really.

Hope this helps.

The Art of Scaling In and Out of Winning and Losing Trades

Posted on by Ophira Top

Introduction

As a stock trader, the strategies that you choose to (or not to) implement can massively influence your success. Understanding and applying effectively the techniques of scaling in and scaling out of trades, for example, could be a useful skill for anyone looking to improve their trading performance.

In today’s article, we’ll deep dive into the processes, characteristics, and potential benefits of scaling in and out of both winning and losing trades.

Scaling In Winning Trades

Scaling in is a method where a trader incrementally increases their position size in a stock as it moves in the trader’s favor.

The primary advantage of scaling into a winning position is to manage risk effectively.

By gradually increasing your investment as the trade moves in your direction, you’re not just protecting your capital against sudden, adverse market movements, but you’re also allowing yourself to gather more evidence that your trading decision was correct.
This method can lead to a more efficient use of capital and can significantly improve your risk-to-reward ratio.

scale -in better risk control

How does it work?

The scaling in process is really quite simple and only consists of the following three steps:

  1. First Entry

    Start by opening a smaller-than-usual position size when you first enter a trade (and remember, this should be a percentage of your total trading balance).

  2. Incremental Increases

    As the stock moves in the desired direction, add to your position in predetermined increments, based on specific price targets or technical indicators.

  3. Assess and Adjust

    Continuously evaluate the performance of your position and the overall market conditions. If the trend continues to be favorable, you can keep scaling in until you reach your maximum position size.

 

Scaling Out Winning Trades

Scaling out winning trades, on the other hand,  involves gradually closing a portion of your position as the trade becomes profitable, securing profits while still keeping a foot in the market in case price carries on moving in your favor.

Amongst other things, this tactic also helps traders manage emotions and emotional decision-making by setting predetermined exit points, reducing the temptation to hold a position too long in the hope of a lifetime’s worth of riches all at once, or panic and exit the trade too early and miss out on those same gains.

scaling out to boost r/r

How does it work?

Just like scaling in trades, the scaling out process is also formed by three simple to explain steps:

  1. Initial Profit Target

    Once a trade reaches a predefined profit target, sell a portion of your position to secure gains.

  2. Subsequent Exits

    Continue to exit your position in increments as the stock advances, based on additional targets or technical cues.

  3. Final Position

    Decide in advance what signal or event will trigger the closing of your remaining position, whether it’s achieving a final profit target or a reversal pattern indicating the potential end of the trend.

The art of balancing scaling in and scaling out of winning trades is critical for optimizing your trading strategy but do remember that strategic entry and exit points must be determined based on thorough market analysis, personal risk tolerance, and clear objectives.

Key Notes

  • Both scaling in and scaling out serve to manage risk, allowing for more flexible capital allocation and the securing of profits while still enabling the possibility of further gains.
  • Successful scaling requires a deep understanding of market trends and the ability to interpret technical indicators and price movement patterns effectively.
  • These strategies can help traders manage their emotions by providing structured entry and exit paths, reducing impulsive decisions based on fear or greed.

Scaling In Losing Trades

The concept of intentionally scaling into losing trades might seem counterintuitive or even “way riskier than trading needs to be”  and it actually can be but only if the proper risk management principles are not in place.

Scaling in and Scaling out of losing trades are strategies that rely on the trader’s conviction that the market will eventually reverse and move in the trader’s favor, despite initial adverse price movements.

The idea is to average down the entry price (aka dollar averaging), making it easier to recover the initial losses and profit if and when the market reverses in the expected direction. However, this approach magnifies the risks, making it imperative to have a solid exit strategy and risk management plan.

Key Notes

Scaling in and out of losing trades requires and relies on:

  • Strong Fundamental or Technical Justification: A thorough analysis justifying why the initial trade premise is still valid despite initial losses.
  • Defined Risk Management: Clear criteria for when to stop scaling in if the market continues to move against the position, typically involving a set maximum loss threshold or a critical technical level.

 

the art of scaling to a losing trade

Scaling Out of Losing Trades

Scaling out of losing trades is a strategic approach aimed at mitigating losses. It’s particularly useful in situations where the market moves against your position, but you believe there is a chance for partial recovery.

As the trade progresses, if the stock price moves against you and your stop loss levels are hit, instead of closing the entire position, you can choose to scale out by selling a portion of your shares. This allows you to reduce your overall risk exposure.

How does it work?

  1. First Exit

    Begin by closing the first predetermined portion of your position once price reaches your first stop loss level.

  2. Subsequent exit

    As price keeps moving against you, close another portion of your position once the price reaches a second stop loss level. According to your position sizing and the size of your portions, you might repeat this step more than once.

  3. If and when a price reversal occurs, consider starting to scale in as price moves in your favor.

 

Note

You can also use a trailing stop loss strategy while scaling out. As the stock price moves in your favor, you can adjust your stop loss levels accordingly to lock in profits and protect your remaining position.

ttp - a prop firm for stock traders

Conclusion

Scaling in and out of trades is a sophisticated strategy that, when executed with discipline and a sound understanding of market dynamics, can significantly improve a trader’s ability and success in the stock market. But it is important to remember that it necessitates ultra-rigorous planning, steadfast execution, and an unflinching acceptance of the risks involved. Like all trading strategies, it’s not without its pitfalls and requires a deep commitment to continuous learning and emotional strength, so… be careful out there.

Hope this helps.

Merry Xmass. Happy New 2024 Year