But what frustrates most wannabe traders the most is an inability to be consistently profitable. One would often feel that he or she was at the threshold of some kind of breakthrough, and yet he or she would keep getting into the same kind of setbacks time after time—either by missing the key market moments or by exiting the trades far too early. Why? Well, the reason behind this is that many traders lack a concrete system of identifying high-probability trades and then executing those trades.
Fortunately, professional proprietary traders—or prop traders—have honed systems to surmount precisely this challenge. These elite traders often utilize sophisticated software and data to execute proven strategies that keep them ahead of the market. One of these firms is SMB Capital, a best-in-industry proprietary trading firm breeding traders with the most consistent results above market averages.
Below, we go through the exact entries and exits used by a professional prop trader from SMB Capital. We go through real, highly profitable trades in minute detail on a “bar-by-bar” basis. By seeing through the principles and strategies of decisions of this trader, you understand how prop traders make decisions regarding risk and momentum.
The Bar-by-Bar Breakdown: Why It’s Important?
Success in trading is based on price action: a read of the market behavior bar by bar. This plan provides more insight into the market trends and the psychology of traders. Prop traders rely on such minute details. They know finding entry points, position management, and optimal exit points all come via a study of price movements.
Let’s take a look at a 5 live trade examples to show the strategy of a prop trader in action.
Trade 1: SMCI – News-Driven Short Setup
On this trade, SMCI had a huge drop after a report from Hindenburg, an extremely well-known and respected short-selling company. Hindenburg found an accounting red flag, and SMCI’s stock quickly reflected the negative sentiment in the pre-market.
The Setup:
On August 27, buyers stepped in to push SMCI above the VWAP and create artificial, short-term bullish momentum. The key was knowing this buying was artificial and that the Hindenburg report also couldn’t be swept under the rug.
The drama continued the next day when SMCI announced it would be late in filing its annual report. This had been a great short opportunity, with prop traders having two key levels in mind: $495 and $478.56, both of which were important support areas from the previous day.
The Entry:
As soon as the news of the delayed report hit, the prop trader shorted SMCI at an average price of $503. He risked to the previous day’s high around $534, a strategy that allowed him to make a calculated risk.
The Exit:
Using a two-minute bar trailing stop, the trader rode the momentum down to $452, capitalizing on the breakdown. The second-chance setback around the $440 level now gave the traders another short entry, using the trend-following approach.
Trade 2: The Monkeypox Low-Float Basket
The Setup:
GoX, VX, APDN, TNXP A basket of low-float stocks related to the virus jumped when breaking news hit regarding the first U.S. monkeypox case. These low floating stocks initially rallied upon the first day of the news event but pulled back as confidence amongst traders started to lose some steam.
Headline, on the morning of August 21, confirms a case of monkeypox in Michigan; GOX gaps limit up. An astute prop trader recognizes, almost immediately, VX as an outlier in the same basket, not trading to a halt. He seizes this opportunity for the basket to move in sympathy and takes a long position in VX above a breakout level.
The Entry:
The trader had entered VX just before the stock hit a key technical level at $6.50, banking on the continuation of the momentum.
The Exit:
The trader scaled out of their position following an initial spike of almost $1 as VX approached $9, taking profits along the way. A final exit occurred after watching volume taper off post-market.
Trade 3: A Clean Pattern-Based Trade Using APDN
APDN gave a textbook setup for a wedge breakout on the second day of the monkeypox news.
The Setup:
It had made some big premarket moves, pushing into a resistance zone around $1.80. The prop trader marked that level and watched closely as APDN formed a wedge pattern. As the stock broke above the wedge on rising volume, he got long.
The Entry:
The trader entered as APDN broke the $1.80 level, accepting risk to just below $1.79. This was a high-probability setup with high volume and float rotation happening in real-time.
The Exit:
This is where, as APDN rallied into pre-market highs, the trader took profits, covering into the momentum around $2.40. Once there was a failure in the leader of the move—VX squeezes in the monkeypox basket—the trader knew that might be the end of the rally and got out of the way of the reversal.
Trade 4: Nvidia Breakdown – Technical and Macro Setup
Nvidia NVDA gave a clean technical trade to the upside on September 6, courtesy of a greater macroeconomic catalyst in the form of weaker-than-expected non-farm payroll data.
The Setup:
The market was overall bearish after the payroll report, with the price of NVDA trading below a significant moving average. There was a clearly defined breakdown level of $104 in place over the last three days, and the SMH was showing relative weakness.
The Entry:
After the failure of NVDA to hold a rally after the open, the prop trader went short on the break of $104 with overall market internals confirming the weakness. This was an attempt number two since the stock had previously bounced off this level.
The Exit:
Following the break below $104, the stock traded lower. There was a scale out into the move at levels around $101, the intentions were long into an extended move to $100.6. This was quickly exited as a strong rebid at levels close to $101 gave an indication of a possible turn.
Key Lessons from the Bar-by-Bar Breakdown
These examples are just a few of the key prop trading principles:
- Understand the Catalyst: When there is tremendous momentum, many times it’s stock news, earnings, or macroeconomic announcements. It’s a great ability to process the situation as quickly as possible and be in on the event.
- Technical Levels: From daily lows to moving averages to wedge breakouts, technical levels provide important context for entries and exits.
- Risk Management: Professional traders always know their risk before entering the trade. In those examples, the risk was defined by key price levels: either the unchanged price or the low from a previous day.
- Market Internals: By using market internals, prop traders always remain aware of the broader market sentiment, whether in the form of sector performance or market internals like tick or volume ratios, which may give them added confidence in a trade.
- Giving Trades a Second Chance: One of the traits of high-conviction trades is that it can take multiple attempts to work. A pro will re-enter without hesitation if the setup is still valid.
Conclusion
You will be studying exact entries and exits of professional prop traders that will dramatically improve your own trading performance. Most breakdowns are bar by bar and really give valuable insight into exactly how elite traders approach the markets, focusing on catalysts, using technical levels, and managing risk effectively.
The key takeaway is that trading success doesn’t come from luck or hunches. It comes from preparation, discipline, and a deep understanding of market dynamics. Once you adopt these principles and continuously apply them in practice, you will start to see improved results in your own trading.
If you’re interested in learning more about proprietary trading and possibly joining the elite trading team, SMB Capital offers free online presentations that delve a little deeper into exactly which techniques its traders are using each and every day. Whether you work in-house or remotely, you’ll benefit from their expertise and systems in building a lucrative trading career with absolutely no risk to your own capital.