CHAPTER 7
Week One on Live Trading
It's probably not entirely rare for beginner traders to experience something of a honeymoon period in the markets. For some, it might have come from the experience of taking long positions (buying) on tech stocks during the tech boom of the 1990s. For others, it might have been options or the resource sector bull market on the Toronto Stock Exchange. For me, it was the experience of scalping General Electric at a time when the uptick rule was still in effect on the stock. Something about the intraday market action simply clicked for me right off the bat, whether it was a combination of beginner's luck and optimal market conditions for my psychological makeup or a pure lucky streak that triggered just the right mindset to continue the streak under those market conditions. Before anything clicked, however, there was a period that I would consider a combination of luck and a level of extreme focus bred by nervous determination.
The basic level of the trading style taught at my branch of Swift was fairly straightforward.
Liz had explained that the Time & Sales of the S&P 500 index futures contract was an excellent indicator of market sentiment, which made perfect sense, especially for a large conglomerate like GE. I had never checked the statistics behind this assertion, but it sounded logical to me at the time. After all, this was the widely traded stock of a massive multinational conglomerate, whose name was familiar to me on everything from its ownership of CNBC and Universal Pictures to the logo on microwave ovens and light bulbs. So the idea that it would exhibit a strong correlation with the benchmark market index of the largest 500 listed companies by market cap shouldn't be a surprise. In either case, I went on to use the S&P futures tape as my last-step confirmation signal for every scalp trade.
Before the confirmation signal, however, was the fundamental basic elements of tape reading.
At a time when the New York Stock Exchange (NYSE) was still in something of a transitional period into its current form as a hybrid market, the trading action on General Electric was typically much slower than it is as of this writing (this is based on casual observation of the Level 2 quotes and not an actual statistical study of any kind). At the time, especially with the uptick rule in effect on a specific list of stocks (which GE was a part of), there was a certain predictability that I will make every effort to explain. (I've considered that any attempt to explain this particular aspect of the experience might end up sounding like I'm advertently vague about this, but a lot of it was a matter of watching and adapting on an instinctive level and may not have even held much statistical consistency. I also considered that much of it might have been luck, but there's probably no harm in relaying my theories of how it might have been done.)
The main criterion for trade entry was straightforward—General Electric had moved down one or more price levels (pennies, as this was after the decimalization in U.S. equities) as I waited and watched every red print on the Time & Sales at the same time the number of shares posted on the bid on each market center shrank. At the same time, the number of market centers with any shares at all left on the national best bid at that particular price level shrank at the same time. And when this happens on the bid, while red prints (transactions at the bid) repeatedly print, there is one clear message at the moment: Selling pressure is pushing against the bid, and down is the likely direction (I emphasize “at the moment” again—this is not about daily trends or even five-minute trends, this is about the immediate moment at hand). Soon, after this has happened for more than two pennies, there was usually a point where the selling would pause and a bid at a lower price level would show signs that it might hold. (While most of this phenomenon is still present in the markets, this particular moment was glaringly obvious at the time, but you might still find something similar at times today.)
When the pause occurred, I would typically place a bid on a maker-taker rebate-paying ECN such as Archipelago to go long in hopes of collecting a rebate as well as a fill that would also potentially be in the right direction. I quickly glanced at the S&P futures tape and as soon as I saw a new wave of green over there, I took it as final confirmation and entered the buy limit order to an ECN and joined the bid at a moment that looked to be against the market (it wasn't quite against the market since there would be a significant pause, meaning a couple of seconds in this scope, when the bid was being held either by another ECN or by the NYSE floor specialist).
Typically, the bid held for a few more seconds. A few more red prints would come, one of them would be on P for PACX, the Archipelago ECN merged with Pacific Stock Exchange at the time (now ARCA), and my daring against-the-wave order would get filled. Aside from establishing my initial position on the stock, I also collected a rebate of around $2.50 per thousand shares from ECNs like Archipelago for adding liquidity on their system.
In any case, there were only three major scenarios for these types of trades, in my experience at the time, after this point:
In general, the most common scenario was scenario #1. While this may sound like a strongly negative statement, it actually speaks of the strength of this strategy. If scenario #1 occurs, there are two possibilities: Either the downward momentum continues to looks ready to take out another level (in which case, I would punch out for a one penny loss and almost no commissions since the rebate from Archipelago had cancelled out most or all the cost, depending on which market center I hit on the way out) or the downward momentum stopped and the tape printed nothing by green at the level below my entry—in which case I would often exit at breakeven with a sell order posted on the offer at one of the ECNs that paid to add liquidity. Since the offer would then be the same price as the bid was before the level broke against my entry, the net result was a breakeven trade with two rebates paid. In the second case, I would be net positive on the trade despite the immediate break against my position.
“Never take a loss bigger than two pennies if you're scalping a stock like GE,” Liz had insisted. “In some cases, five pennies at the most, but that should not be your average loss. On average, your losing trades should be close to breakeven.” As challenging as it sounded, the reality of these stipulations made sense to me when I began trading at Swift. In hindsight, on a stock with a relatively tight average daily range and high volume, there is no real reason to take larger losses if your commission costs are low enough to reasonably support upward of 50 to 100 trades per day or more.
And it seemed to work.
After the market closed at 4:00, Darrell, the owner of our branch, had specifically chosen Joey and myself, just two out of our class of trainees, and invited us out to a meal with him in the Bay Street area following the close of the day's training session. To this day, I haven't discovered any particular reason that he chose the two of us specifically. Darrell was unexpectedly candid about his view of the business during that meal, including a rant about his opinion of Goldman Sachs and its role in the markets and the universe. Toward the end of the conversation, he went as far as to declare his viewpoint that Toronto real estate was a better long-term investment than any paper security in the world. Personally, my opinions about most of the issues he brought up were neutral, but when I saw my cues, I put the effort in to keep the conversation going when it seemed appropriate. In my mind, I had mainly put effort into concealing my surprise at the whole situation and some of the seemingly random perspectives he had on the world of finance.
As the first week of training progressed, most of the pressure on our class of trainees was concentrated on the fact that we were not allowed to trade with charts. This stipulation forced all the trainees to concentrate entirely on the actual prints on the Time & Sales while watching the hands being shown on the Level 2 quotes. Over the long haul, using these tools alone without any outside backup can still be relatively difficult (though a correlated index futures' chart might be your best bet here.) In hindsight, while the experience was definitely a milestone in reading the tape, I've come to believe most of the profits in the first week of training were also augmented by the level of extreme concentration and focus caused by the perceived pressure from the very idea of trading without charts.
It was more important that the bottom line was green every day of the week.
“You can start trading 200 shares next week,” Liz told me at the end of the week after four consecutive days in the green at end-of-day. Moving up a level on the maximum per-trade share size ladder was something of a promotion for prop traders at Swift Trade. It gradually allowed traders who had shown some form of consistent profitability to scale up their profits and losses, and as long as a trader was able to maintain the same proportionate risk management to achieve a green bottom line at the end of the trading day, the promotions would continue systematically.
On my second week as a trainee at Swift Trade Securities, I had taken a day off to travel to New York City for a weekend. This trip had been planned long before I applied to start at the company, and Liz had known about this before the first training week even began. My friend Bridget, who had been studying at York University in Toronto, was born and raised in New York and had offered to drive me and another friend from Canada to see her city for the first time. That weekend was my first time in New York City and my first time seeing the New York Stock Exchange building on Wall Street in person. It was also the first time I met Bridget's friend, Anna. She was half Irish and half Italian—two of the major nationalities that settled in and shaped the unique culture of the Big Apple, or, as I like to call it, the Gangs of New York mix. Complete with the unmistakable New York accent, which is often semi-erroneously attributed to Brooklyn alone and almost never depicted accurately in movie and television characters, she was the epitome of the city both past and present in my view—maybe even as much so as the very idea of trading NYSE equities might have been in my mind at some point. She had actually grown up in the borough of Staten Island, a mostly residential island southwest of Manhattan that is, incidentally, the opposite from Brooklyn and is actually the hometown of certain individuals on Jersey Shore.
Bridget herself lived on the hills near the Old Town neighborhood of Staten Island, which could only be described to Canadians as a small cluster of beautiful upscale housing surrounded by an area that's a much less visually appealing species of run-down strip malls, reminiscent of the crime-ridden southern end of Toronto's former borough of Scarborough (which has officially become part of the Toronto mega city since 1998). Bridget had been a good friend of mine for over a year at the time and we had taken a few trips together for concerts and other experiences through various parts of the northeastern United States and southeastern Canada already. People who met Bridget would not believe that she had actually been born in Brooklyn and raised in Staten Island. In fact, of all her friends and family from New York, she is the only one to have completely gotten rid of her regional dialect. In fact, she is one of the only New York friends I have met in the years since who actually speaks like the typical New York characters in television shows and movies—namely, the non-regional generic American “has no accent” neutral dialect that can just as easily be attributed to a person from Hollywood as it can to someone from Toronto. In fact, despite her innocent little blonde girl persona, she had actually gotten into a few arguments with people who refused to believe she was born in Brooklyn and raised in Staten Island. Anna, on the other hand, was a much more stereotypical New Yorker in everything from personality to speech—and I have long suspected that might have actually been part of the attraction, as it's probably fair to say that I grew up as a fan of the city and had even chosen a profession that's often associated with it.
Of course, at the time, I had no idea that Anna would become my fiancee a few years later, nor the fact that turmoil would hit the relationship in—of all times—2008, in conjunction with the climax of the largest market crash in recent history, a year after the S&P 500 achieved new all-time highs. Likewise, I had no real assurance at the time that I would even remain in the securities industry for longer than a month, even though I had made up my mind that I would make all reasonable efforts within my power to maximize my odds of surviving as a trader.
And without the ability to see into the future—an ability I'm sure every trader and every aspiring trader would love to have at his or her disposal—I had already, somehow, drawn in my head a parallel between my personal life and my career in trading. That parallel would later form the basis of my psychological makeup as a trader. Much like the day I initially met Anna in New York, the first week of live trading on the NYSE could be described with the phrase “It just clicked.” Overall, it felt as though everything had been headed in the right direction and the potential appeared endless.
When I returned to Toronto following the weekend in New York City, I entered the trading floor in the morning unsuspecting of any particular surprises. Liz turned on the TV mounted by the area facing the trainees. Jack and Gordon went to their usual seats at the front. Slowly, the trainees entered the floor.
As I made my way to my usual seat, I paused at the sight of a mound of white debris from the ceiling on the chair where I normally sat. At first, I suspected that this might've been the first prank, but Liz quickly explained the mound of debris and the pool of water surrounding my chair below a gaping hole in the ceiling.
“Oh, sorry, that happened when you were gone,” Liz informed me in a completely objective tone of voice, as if ceiling leaks on a trading floor were as common as swearing, CNBC, and general laughter.
“What happened?” I questioned in a bit of a surprise.
She shook her head. “We're moving to a new building next month. There was a leak in the ceiling and that happened yesterday afternoon when you were gone.” She pointed to a different seat in the trainee area. “You can take that one now.” She seemed to think nothing of it despite the fact that nothing like it had ever happened before.
I suspected then that a little more experience in the markets would take me to a similar place when it comes to strange low-probability events.
Of course, I was nowhere near that place in my career yet. Instead, I was simply floored by the coincidences involved. Apparently, not only had things gone unusually smoothly at the beginning of my training at Swift, but I had somehow dodged the experience of a specific leak in the ceiling that caused a small section of it—just large enough to cause water and debris to drop directly onto my seat, and my seat alone—to fall directly where I would have been trading on the NYSE on that otherwise normal afternoon. Instead, when it happened, I had coincidentally been visiting the actual NYSE building on Wall Street with a group of friends that included two New Yorkers.
It would not have been the worst possible thing that could happen to a trader, that's for sure. Still, I asked myself, what are the odds that a section of the ceiling, so small and specifically shaped as to only drop onto a single seat, without any water or debris hitting any other seat or desk, would drop specifically on my seat on the one day that week I had taken off? If anything, I took the incident as a reminder to me, with such an elegant in-my-face (or on-my-head) example, that we can never truly avoid the role of random chance in any aspect of our lives, least of all anything related to the markets.
* * *
As my training progressed at Swift Trade, I began to apply the high volume scalping techniques on Time Warner (TWX) and Pfizer (PFE), but the price action on General Electric was still my go-to for the majority of my daily profits at the time. Eventually, I also added Advanced Micro Devices (AMD) and a few other names when the market conditions felt right. I also started to get a feel for the different rhythms and behavior patterns of each stock at the intraday level. They all had a very distinct personality that very easily becomes obvious by viewing the price action with a Level 2 quote and a Time & Sales tape view.
Swift Trade Securities was said to be rapidly expanding around the world and I certainly believed it. Their risk model, which some traders might find too restrictive, was based on a solid mathematical model most likely devised from a decent amount of planning and calculation. They started trainees off with a maximum loss of $25 per day (at 100 shares, that amounted to 10 to 25 consecutive losses in the style I traded—which typically meant you either had absolutely no idea how to read the tape, or you were too stubborn to admit you were wrong). As the share size increased, the maximum loss increased to allow for any intraday draw-downs.
However, an additional rule stipulated that once a trader has locked in profits during the course of the day, the trader would only be allowed to lose half of those profits in the remainder of the day. By enforcing this rule, Swift had effectively used a trailing stop loss on their traders. And if your personality fit their style of trading, it seemed to work. (A stop loss is an order often used by other styles of traders, for example, non scalpers, to exit a position if it moves against them by a certain amount. A trailing stop loss is the same except it would follow by the same amount relative to the unrealized profits of the position, so that the maximum loss would always be the stop size relative to the highest unrealized profit of the position. In reality, trailing stops tend to be hit or miss over the long term depending on other factors that affect a strategy. In this case, however, Swift as a company had essentially done this using the entire day's performance of a scalper as virtual unrealized profits. On top of ECN rebates in the maker-taker model, high volume deals, and other arrangements, the company seemed to be doing well with it by all indications. Incidentally, as described in the scenarios used by my original strategy on GE, stop loss orders were never actually used at Swift—all loss limiting exits were done manually (especially since there are opportunities to exit using different routing strategies that sometimes cancel out all costs and occasionally come out with a profit on a breakeven trade). Liz had also assured us that the company's risk managers, who were not in the same building as our branch, would close our positions for us in a disaster scenario if our computers lost connection.
High volume scalping simply isn't for everyone.
Monday morning, Joey approached me on the way into the building. “I don't think I can do this,” he confessed, like he had bottled this fact in the depths of his mind for the past week.
Joey had actually been a profitable options trader during the late 1990s tech boom and had worked for a branch of Interactive Brokers for some time but decided to look for other opportunities when he initially moved to Toronto. Something about the style of trading taught to trainees by Swift simply didn't fit his personality and it undeniably hurt his bottom line from the start.
At that point in my career, I had put minimal effort into networking within the industry. Sure, I had always understood that a certain level of willingness to keep contacts in different areas of the securities industry would build up the future probability that one of your contacts might pay off in some way, but it simply wasn't consciously a major priority in my mind at the time. Nevertheless, my first contact on the brokerage side of the business landed in my lap that day. Joey had spoken to Liz that morning and was prepared to leave the trading floor on good terms, but before he left, he handed me his business card and noted that if I ever changed my mind and wanted to work for a major Canadian broker-dealer, I could give him a call. Our paths have never crossed again as of this writing, but I appreciated the gesture and it reminded me that regardless of how well or poorly I might perform in the remainder of the training at Swift, it's always a good hedge on a trader's future performance to build up a personal portfolio of contacts in various corners of the securities industry, even ones that may not appear relevant at a particular point in time.
In hindsight, Joey wasn't intrinsically a poor trader by any stretch of the imagination. By employing many other styles of trading, he most likely would have done very well for himself. With his options experience and his familiarity with the Greeks (quantifiers used for risk management in options and other derivatives), there was little reason that he wouldn't prosper in many of today's proprietary trading firms' business models, as well. Swift's bread and butter trading style of high volume scalping is a very specific style of trading—so much so that many who do not practice it tend to turn a nose up at it as an inferior method of making money in the markets—and tends to either suit your personality right off the bat or completely grate against every fiber in your being for as long as you attempt to practice it. You either love it or you hate it. Some traders will bank thousands per day using it while others will constantly lose or hover around break even until they reach their mental breaking point with it.
In either case, the training class of four was down to three. Despite the numbers, it never quite fostered a full-blown cutthroat competitive attitude between the trainees in my class at this branch of Swift, but it crossed my mind on more than one occasion that even a 25 percent survival rate of trainees is considered to be a high estimate for fresh Swift Trade trainees and we were already on our way to matching that statistic quite literally. Deep down, it was my awareness of this concept, as well as all those alleged trader survival statistics like “95 percent of all traders lose,” often tossed around the industry with almost no real data backing, that drove me to push myself to consciously perform at the best of my ability every day from 9:30 in the morning until 4:00 in the afternoon.
I never actually considered myself the most talented trader in the world, nor even remotely the best on the trading floor of that Swift branch, and I still don't. It never crossed my mind to attempt to become a top performer in that sense, for better or for worse. I just went into every trading day accepting my participation in the markets as a challenge, knowing that the majority of aspiring traders give up before achieving any consistent standard of profitability. I had decided that I had to manipulate my natural psychological tendencies to effectively operate differently from the knee-jerk reactions that we're pre programmed to react with in perceived positive and negative situations. Whether it's the amplified disappointment reaction to small losing trades or the celebratory reaction to the occasional large winner, I consciously attempted to suppress the natural reactions as best I could.
In the end, those efforts probably made a smaller impact on my bottom line than the fact that certain strategies are simply far more effective when performed by a person with my predisposition than others in particular market conditions.
Every hour of the trading day, the trainees would continue to jot down the highs and lows as of each hour. After the markets closed at 4:00 P.M. Eastern time, every trader on the floor would print a record of all the trades made that day to review overnight.
In hindsight, the review process was one of the most effective ways to point out when a trader lapsed in limiting losses. Considering that trainees were taught to exit at between breakeven to a maximum loss of two pennies, the typical profitable day would look like a series of breakevens (some of which are net positive after costs with ECN rebates), some winning trades of one penny each, an occasional winning trade of three or more, and a few losing trades of one or two. On those days when there's a losing trade of anything more than two pennies, it tends to pop out of this list like a sore thumb.
“What are you still holding onto it for?” Liz would yell at trainees who held positions into deeper losses than the recommended maximum loss for a particular stock.
Often, struggling trainees would approach her at the end of the day with the day's trades and Liz would go over all the reasons to “Keep the losses smaller!”
Of course, no part of starting out in this business is smooth sailing, and my second week began one of my greatest challenges up until that point in my trading career.
Initially, the overconfidence that was slowly brewing and spreading in my subconscious, in spite of all my conscious efforts to stay emotionally neutral and humble in the face of market uncertainties, began to influence my actions. I had begun to explore ideas to improve the strategy I had been using in the first week of training. Somehow, a part of me had been convinced that if I could make money every day (and this was based on the data of only one week, mind you) that I could turn it into something huge by adding outside ideas into the strategy in some way. The rules and stipulations at Swift would not actually be broken by any of these changes to my approach; it was just a supplementation, I justified to myself.
In the second week of training, we were allowed to use charts. Of course, charting was probably the weakest part of Swift Trade Securities' Prosper Pro software platform at the time. It was often said to be “eternally in beta testing” and many of the senior traders had opted to pay for eSignal's charting package as a replacement for its charting features.
My second week was not a complete failure in hindsight. I hadn't lost a massive amount relative to the size of profits I had been making in the first week. The main issue was that I began to end up with break-even days, which was a significant step back from the green of the previous week. Some might blame the addition of technical analysis methods. Others might blame the market conditions. Personally, I felt like the biggest change was that I had relaxed and lost some of the focus I had in the first week. In reality, it may have been a combination of these factors.
For many styles of traders, especially longer term trading styles or forms of statistical arbitrage, a transient loss of focus is probably not a big deal. For a scalper whose job description is to effectively watch every print on the tape and every change on the Level 2 quotes, it can have an enormous effect on your bottom line. I had become complacent, and I had to admit it to myself.
By the end of the week, I regrouped. I looked back on the trade records from each day and saw a huge difference between the consistency I found in week one and the performance I exhibited in week two. They were worlds apart, and the glaring fact that stared me in the face was that only I honestly knew at the time that my mind was not quite in the right place for the style of trading I was learning. I suspected that week one was beginner's luck, but I also knew full well that my mindset was not quite the same in week two and it was time to fix it.
Looking back on the experience, I've come to understand why Swift's business model favored fresh minds over people who had some intermediate level of trading experience (in other very different trading styles or markets). I wouldn't go as far as to say it's impossible to teach an old dog new tricks in this business—I'm sure there are exceptions to the rule. After all, trading any market is about adaptation and the ability to exploit inefficiencies. Sometimes, an experienced trader who has adapted to many different conditions in the past might actually be an excellent fit as a prop firm trainee. In general, however, it's probably much more difficult from the perspective of the trainer, especially when it comes to assessing the origins of any roadblocks that the trader might run into during the training process.
In the weeks that followed, I regained my initial footing in the proverbial race to success as an equity scalper. One by one, the other trainees left this branch of Swift, each with a different justification. Whether it was the discovery of a new dream in life or a sudden opportunity at an old place of employment, there was one common factor that screamed out of each of their situations: None of them focused on pure tape reading. This is not a boast or a universal criticism of every trading strategy outside of Swift's scalping method. In fact, many of Swift's own senior traders (today's former Swifties, myself included) have branched out into other styles of trading either as a replacement or simply as an augmentation to the original high-volume tape-reading scalping style. It's not the only profitable method, and it's not always the most profitable method of trading in every market condition. However, it remains often underestimated as an effective core trading method and the skills and knowledge attained from practicing it can become undeniably useful for the development and execution of almost any other intraday trading style.
Two aspects of high-volume scalping became major milestones in my psychological development as a trader throughout the remainder of my career to date.
First, high volume scalping naturally familiarizes the trader who learns and practices it to become intimately familiar with the essential aspects of order routing, destination selection, and the overall dynamics of market microstructure to some extent. Landing in a branch with a good trainer who fills in the gaps in theoretical aspects of this is also helpful, but the actual practice of participating in the markets on a daily basis at this level naturally teaches a beginner to understand the real world intraday market dynamics in a way that can never be learned by staring at chart indicators and changed-at-convenience analyst-speak.
Second, high volume scalping is a style of intraday trading that naturally calls for a rapid rise in per-transaction trade size. Due to the scale and time frame of each transaction, it makes very little economic sense to trade small sizes forever. At the beginner stage, Swifties would begin with one lot (100 shares, which comes to $1 per penny of price change) per trade. This number, of course, quickly rose for trainees who achieved consistent profitability at each level. Psychologically, many trainees face a mental block around 5 to 10 lots (500 to 1,000 shares) as the emotional effects of the monetary impact of $5 to $10 per penny of price change on the stock begin to take effect.
“Some of these guys just can't do it,” Liz commented as she looked over my printout of the day's trades at 500 shares per trade on General Electric (GE), Time Warner (TWX), and Pfizer (PFE). “This is really good. Just remember, there's more than enough liquidity on these stocks for you to do this with 20 times the size you're doing right now. More. When you get up there to a 5,000-share max, and even higher later on, you need to be doing exactly what you did today. And your head needs to be in the game just like it was today. You can't be scared of the size.”
As she handed my printout of the day's trades back to me, I recalled that I had actually run the idea of increasing trade sizes through my head during the entire subway ride through downtown Toronto earlier in the week. It had occurred to me at the time and, logically, it made perfect sense. In week one, I had effectively made money every time I gained $2 to $3 per trade; followed by losing $1 to $2 per trade a few times; breaking even on a few trades, mostly gaining a rebate from an ECN for adding liquidity; and at the end of the day, the bottom line (after charges and rebates) came out to somewhere between $15 and $30 in the green. And that was trading with one lot at a time. All fees and rebates were calculated with per share rates, so it was entirely scalable. At 10 lots, that would have worked out to a $150 to $300 bottom line at the end of the day, and this was net of all fees and ECN rebates. It wasn't difficult to see, at the time, how many of those traders sitting only a few rows in front of the trainees at our branch were able to pull upward of $1,500 out of the market in a day. What was difficult to comprehend at the time, was just how easy it seemed for a trader to see a profit and loss number in the negative in the scale of $2,000 red, and then being up $3,000 in the green, and so on, without so much as a bead of sweat running down his forehead. As this concept entered my mind for the first time, I was a trainee who had only recently been complaining about the rising cost of a $110 CAD monthly Metro Pass for the TTC subway system. Every part of that concept sounded like a lot of money to be losing and making on each trade, even if the profit split were to start at 35 percent paid out to the trader.
“You can't think of it as money,” Liz added. And that was the key. In fact, she encouraged the trainees to avoid looking at the P&L display on the trading platform during trades. The act of entering and exiting trades needed to be performed at 5,000 to 10,000 shares with exactly the same mindset as when we began with a 100 share per trade limit.
While individual traders may never quite need to enter a 10,000 share order, especially those who may not be mentally suited to a high volume scalping style or simply do not have access to a fee structure that economically allows the trader to execute trades at this scale and frequency, learning the concepts that a scalper learns from this level of direct interaction with the exchanges, ECN systems, and dark pool algorithmic routes, is invaluable. And even for a longer term trader in a retail brokerage account, there may come a time when the trader's equity has grown enough to justify a relatively large typical order size.
Many would argue that a major factor at Swift Trade was the simple fact that the trainee did not have one cent of his or her own capital on the line as he or she built up the per-order trade size on a near-weekly basis when a trainee initially finds consistency. Admittedly, the idea of risking the company's money in the process of seeing −1.000 and +1,000 P&L figures might help to some extent, but you'd be surprised at the depth of the psychological effect it had on trainees every day. At times, the idea of risking money that one had worked for the entire previous week to gain on the company's books would have the same psychological effect as risking one's own money even if it originated entirely from the company's risk capital. Often, outsiders to the trading business would use the concept of treating money as nothing but points as a form of social commentary on the culture of Wall Street and Bay Street traders. The point that these people are missing is that this is a human necessity for many people who practice this line of work. Without going into any debates on the potential merits of various styles of traders in a larger social economic perspective of an arguably flawed financial system, one should understand that if a beginner trader were to make the equivalent of a $100 per day salary by effectively acting as a surrogate market maker on an NYSE stock for six and a half hours a day, such a beginner is more likely to have gained $1,000 and lost $900 on the road to arriving at that $100 net profit. (Obviously, this example is simplified without accounting for the profit split with the proprietary trading firm, which will change as the trader's experience grows with the company.) Depending on the style of trading practiced by this hypothetical trader, he or she will also have added a significant amount of liquidity to the market in the process.
Of course, regardless of how high a win rate that any trading strategy can potentially deliver for any given trader in any given period of market conditions, there's always a time in a trader's career that exemplifies just how necessary it is to limit losses in a disciplined and systematic way.
For some, it would just be a much larger number than it may be for others.