What Most Prop Desks Don't Want You To Know

Key Concepts

• Setup Grading is Paramount: Accurately assessing trade setups (A+, A, B, etc.) is the most critical skill for consistent profitability, exceeding the importance of entry/exit strategies.
• A+ Trades are Key: These rare, high-edge opportunities warrant aggressive risk allocation and represent the primary source of profits (80-100% from 10% of trades).
• Multiple Personalities in Trading: Different trade grades require distinct trading mindsets – aggressive for A+, cautious for B.
• Flexibility & Avoiding Preconceived Notions: Traders must avoid dictating how a trade should play out and remain open to market dynamics, especially with A+ setups.
• Iterative Learning & Playbooking: Consistent improvement requires detailed analysis of past trades (playbooking), backtesting, and experience.
• Catalyst Analysis is Specialized: Identifying and evaluating the strength of a trade’s catalyst is a crucial, specialized skill.

Grading Setups & The Risk Spectrum (Part 1)

The core argument presented is that accurately grading trading setups is “the whole game” of trading, far surpassing the importance of entry/exit strategies or stock selection. Trades exist on a spectrum from passing (zero risk) to A+ (maximum risk), with intermediate grades (A, B, C) dictating varying risk levels. A+ trades are rare, possess overwhelming edge, and represent “trade of the quarter” opportunities. Instead of arbitrarily increasing risk, traders should scale by increasing their maximum daily risk limit while maintaining a consistent percentage of that limit for each trade grade. This maintains consistent trading psychology. Avoiding “leaks” – overtrading B trades – is also crucial, as these often lack consistent edge. A risk grading system visually charts grades (A+, A, A-, B, C) with associated opportunity profiles and risk percentages. Key to grading is assessing the strength of the trade’s catalyst and systematically reviewing “checks in favor” against past successful setups.

Examples & Data (Part 1)

Recent parabolic moves in gold and silver are cited as examples of A+ trades where conservative approaches would have been detrimental. The FSLY earnings trade is a current example of an A-graded trade with a strong catalyst. Past trades in Tesla and Ethereum are used as cautionary tales of overconfidence and forcing trades. The silver trade illustrates the dangers of recency bias. Data presented indicates that only 1% of retail traders are consistently profitable, and 80-100% of profits come from 10% of trades (A+ and A). SMB traders have 20x-40x higher odds of success than independent traders.

Refining A+ Trade Execution & Learning (Part 2)

The discussion shifts to the practical application of A+ trades, emphasizing the importance of flexibility and avoiding pre-determined market expectations. Traders should not attempt to control the market or dictate how a trade should evolve. Acknowledging a past tendency to anticipate specific trade behavior, the speakers stress the need for open-mindedness, particularly with A+ setups. Developing the skill to accurately “grade” these setups is paramount and requires significant practice through “playbooking” (detailed trade records), backtesting, and experience.

Future Analysis & Specialized Skills (Part 2)

FSLY (Fastly) is proposed as a case study for the following week, focusing on dissecting the catalyst and technical factors that justified its initial grade. Catalyst analysis is highlighted as a specialized skill, with Tim Beldin specifically noted for his expertise in this area. Key terms include catalyst (event driving price movement), technicals (patterns from price/volume data), backtesting (applying strategy to historical data), and playbooking (detailed trade records).

Conclusion

The core takeaway is that consistent trading profitability hinges on the ability to accurately grade setups, prioritizing A+ trades with overwhelming edge. This requires a disciplined, systematic approach, flexible execution, and continuous learning through detailed trade analysis and backtesting. Scaling risk should be proportional to trade grade, maintaining consistent trading psychology. Ultimately, selective trading and avoiding preconceived notions are crucial for capitalizing on high-probability opportunities and achieving consistent success.