EXCLUSIVE: ShadowTrader's Peter Reznicek On His Early Days, Tips For Success And Evolution

Professional traders with a retail background are few and far between.

This is due in part to the obstacles to success — a lack of direction and understanding, psychological alignment, among other things — so few manage to pass on their wisdom.

A mentor to many, Peter Reznicek, the co-founder and head trader at ShadowTrader, is a seasoned market veteran with whom Benzinga had the honor of speaking.

Below, Reznicek details his early start, perspectives and tips for success, as well as his vision for the future.

Early Days: Reznicek began his career in music.

“This was before streaming and digital distribution,” he recalled on his experience during the brick-and-mortar days of record making. “You need marketing money, you need to press 12-inch records and mail them out to colleges and radio stations, be on phones all day begging for people to get airplay.”

After giving it his best shot, Reznicek explored other interests.

“I had an interest in the markets for a very long time and was sort of watching as the music business was winding down,” he said. “After the turn of the millennium, I decided to go in full-time.”

Turning Points: Reznicek followed the same trajectory most traders follow.

At the outset, Reznicek had little success. In all, it took him between four and five years to make substantial progress.

“It’s an evolution where you start to get it and you stop losing money. Then, you have a long time period where you’re starting to break even or just making a little, and things just sort of become clearer as time goes on.”

Reznicek recalled two turning points.

The first was learning from expert floor traders involved with thinkorswim.

“That was really the genesis of where I started to learn the broken-wing butterfly, ratio spread and things like that,” he shared.

Floor traders, according to Reznicek, had low capital requirements. As a result, they could put on strategies like the 1x2 ratio — a debit spread with an extra short option — for a low cost. (See parts 1, 2, and 3 of ShadowTrader’s how-to series on ratio spreads.)

“On the floor, it is either go big or go home,” he chuckled, remarking that ratio spreads were the way of the casino. “You either get rich or they take your house. So, why would you put on any other spread?"

The next big turning point was Jim Dalton, who’s been a member of the Chicago Board of Trade, as well as a member of the Chicago Board Options Exchange (CBOE) and senior executive vice president of the CBOE during its formative years.

“I’m still in touch with him on a regular basis and I consider him a friend,” Reznicek said in a discussion on Dalton’s works like Mind Over Markets and Markets in Profile, as well as his use of WindoTrader Market Profile software. “I went to Chicago twice to see him teach live … and I came home from those seminars with five, six, 10 pages of notes. The nuances of profile continue to mold me.”

Modus Operandi: Context above all else is a differentiator Reznicek prides himself on.

“Probabilities don’t take any context into mind. Even though, mathematically, the numbers are telling us there is an 80% chance a vertical goes out worthless, that doesn’t mean anything in terms of context,” he said.

Reznicek’s remarks come in light of near-record lows in volatility. Prior to the mid-July liquidation alongside geopolitical tensions and the resurgence of COVID-19, markets priced volatility in such a way that most movement would violate what participants thought would happen, a result of the hunt for yield amid easy-money policies, among other things.

An example trade Reznicek offered was a back spread he put on with his Weekly Options Advisory ahead of an FOMC meeting; “We knew the number for inflation came in hot before that Fed meeting … and we did a back spread on SPDR S&P 500 ETF Trust SPY, expiring” the same day.

“You have no idea which direction it is going to go, but it’s dirt cheap,” he added.

Trading Big Money: At one point, Reznicek managed millions.

“Anything under 10 million isn’t that big but it was big enough that you had to be on your game,” he remarked over his two experiences managing big accounts. “I was putting on huge SPX spreads — like 1,300 contracts at a time — and executing everything on the phone.”

The first experience only lasted about nine months; though profitable, the Global Financial Crisis around 2008, made Reznicek’s strategy untenable.

Years later, Reznicek had a successful three-year run with a high-net-worth individual.

“What you learn from this experience is incredible discipline,” he said. “I certainly wasn’t born with anything. It’s all self-made and so, when I take that responsibility for someone else … I cut losses quicker and was able to look at positions more in terms of their risk rather than reward, which I still do today.”

Additionally, big size makes you less nervous about risk in small accounts.

“The whole thing with sizing is nothing more than just psychological and getting yourself into that mode of not being afraid of it," he said.

Evolution: “I recently started looking at VWAP,” he noted on expanding his day trading tool kit. “You have to constantly keep evolving because the market is evolving.”

“If I can get a pullback, on a very strong stock, to that level, that’s what I’m looking at,” he said.

In terms of ShadowTrader, Reznicek is looking to stay further connected with his clients through tools like ProTradingRoom, a web-based space that enables him to share trade ideas and perspectives on the pre- and post-market, as well as intraday trade.

A new offer Reznicek explained is a scanner that automatically identifies five-day trading setups and notifies thinkorswim traders in real-time, via text alerts.

“I’m thrilled because I want to show people it can be done with small size,” he noted. Prospective users will soon be able to install the tool using thinkorswim’s share function.

Two Tips: Straight up offers no support on the way down. When markets expand range to seemingly unsustainable levels, there are increased odds of a liquidation break.

“There’s no problem with sitting it out because you feel like the location isn’t good.”

Reznicek also believes traders should have interests outside the market such as traveling and meditation: "You know, everybody in the world will take a shower every morning but they don’t clean their brain."

For more on Reznicek, check out his Twitter, YouTube, and the ShadowTrader website.