Hello, my name is Jason Love, and I am the Founder and Lead Trader for the Oil Trading Group.
As a way of quick background, I have been affiliated with TopstepTrader in one capacity or another since 2012. I have been a funded trader, educator and webinar presenter. I strongly recommend TopstepTrader to all the traders with whom I come in to contact. Even if the trader has no intention of becoming a funded trader, I advise them to take (and pass) a Trading Combine® prior to risking their own funds.
The reason for this is quite simple: if you can pass a Trading Combine using TopstepTrader’s parameters, then you will be in a better position to handle your live trading account and, ultimately, in a better position to make money trading futures.
That’s why, from time-to-time, I will also enter a Trading Combine and trade it live in front of my trading room audience. The purpose is to demonstrate live what we talk about all the time: the fact that the number one job of a trader is to preserve capital. Making money is secondary to preserving capital.
Here are three things I did to pass my latest Trading Combine in 15 days.
[2/2/2020 Update: Traders found this post so helpful that we decided to create an info-graphic summary. Enjoy!]
The Trading Combine is designed to assist traders by building the skills to manage risk and maximize reward.
Also, for the sake of full transparency, I feel it is important to tell you that I have not passed every Trading Combine that I have started. Trading is a process, and you are bound to have some points of failure along the way. You can see a detailed review of a failed Trading Combine, as well as several others that I have successfully passed here. Read all four parts of the summary to get the full picture.
However, for today’s post I am going to discuss with you the top three things I did to pass a $50,000 Trading Combine (Step 1 and Step 2) in front of a live trading audience in the minimum time allowed: 15 days.
1. Manage Risk
It is no secret that one of the contributing factors to my passing the Trading Combine in 15 days is that the increased volatility provided excellent opportunity. But as in all things, there are two sides to every coin.
Increased opportunity (volatility) also provides for increased risk.
One of the adjustments that I made in the middle of the Trading Combine was that I reduced risk from 2 lots down to 1 lot. Making this simple adjustment allowed me to “stay in the game” longer when I was getting stopped out due to the “whippy” nature of the moves.
Here is a quick example: If I am normally a 2-lot trader on the ES, with a 2-point stop, I am risking $200, before commission. By reducing my lot size, it allowed me to do two things:
1.) I could keep the 2-point stop and now just risk $100 on the trade vs. the $200 risk on a 2-lot.
2.) If necessary I could take the stop from 2 ES points, $200 on 2-lots, to 4-points on 1-lot.
Now, I can hear you saying…I thought you said you were reducing risk. While it is true that this does not reduce risk (4-points on 1 lot is a $200 stop), it does allow for a trade to have more room to accommodate the bigger average bar size on a 5-minute chart. Another way you can approach the risk is to go to a smaller timeframe chart, where the bar size would be smaller, and the stop placement could be smaller as well. The bottom line here is that I made an adjustment to account for the change in market behavior and increased volatility.
2. Maximize Winning Trades
One of the major talking points we discuss all the time in our trade room, is that to be consistently successful, you need to maximize the reward.
To enter a trade, I always need at least a 2.5:1 reward-to-risk ratio.
When the market is “humming,” like it has been, I expanded those targets out to 3:1 or greater. My average winning trade during Step 1 was $321.34 and my average losing trade was $63.51. This is a reward-to-risk ratio of 5:1!
But you can't just simply move the target out to 3:1 and take the same trades — expecting more. You have to have some market logic behind it. You have to take trades that will allow you to get that reward-to-risk.
3. Quit Trading When I Was Ahead
One of the biggest challenges for any trader is the fear of missing out (FOMO). This is even more powerful when the market is trading like this. There’s always the belief that you could get “more.”
However, the key to consistency is knowing when to stop. As we know, we are not going to win every trade or every day. But one of the biggest blows to my psychological capital is turning a nice winning day into a losing day because I got caught up in the wave of emotion.
So, one of my keys to maintaining consistency and preserving psychological capital is to quit when I am ahead, which I define as when I am up more than $300 on a day.
In closing, I put the details together, screen shots and recap videos, on a web page. For those of you who want to do a “deeper dive” into the results of this trading combine, you can view all this here.