A New Trader's Journey to Success

The six stages of a developing trader are looked at below.

Stage One: The Clueless Trader

This is the first stage when you enter trading. You may have picked up a book on technical analysis somewhere, heard of a day trader making millions, or got lucky in an earlier stock investment. After all, how hard can it be? The money sounds appealing and the freedom to be independent sounds attractive.

I don't mean to shatter anybody's dream but those who succeed in trading are the minority! Approximately 90-95% traders lose money. This is the cold hard facts. In the first stage, every trader is optimistic. You open a direct access brokerage account and the sound of Level II, ask/bid, and market makers make trading sound like hi-tech video game. In reality you have no clue. You will buy just to see the market reverse and you will short just as the market starts to rally. Most of your trades are done emotionally. You buy just because the markets feel strong without any logical reason. You are in the unconscious incompetence stage. You have no clue how the mechanics and psychology of trading works. What's worse? You are not aware that you don't know. Most traders will blow their entire account at this stage.


Stage Two: The Rookie Trader

In this stage you have lost enough money to realize what you are doing is completely wrong. In other words, you start to realize that you don't know. You will then devour every trading book available. You will study and purchase Technical Analysis of Stock Trends by Edwards and Magee believing price patterns are the Holy Grail. You will memorize every technical pattern known to man. You will read about the ADX, moving averages, Fibonacci lines, pivot points, MACD, Bollinger Bands, channels, etc... You will go through the "help" tab on your data vendor to read about every single technical indicator available. You will plot them on your charts and spend hours looking for an indicator that works. You will be extra confident now because think you have found the magical technical indicator.

Yet, you still continue to lose money everyday. You realize that your indicators are lagging and that every other new trader is probably looking at the same thing. You realize that you are the sucker.


Stage Three: The Developing Trader

You start to realize the amount of work required and the immense learning curve that you must overcome to understand the markets. At this point, traders may find it overwhelming and quit. Stronger minded traders will push their motivation harder to start their second spurt for knowledge. Hunger and passion is needed to clear this stage. You will look for reference online, join mentor programs, chat rooms, and seminars. You realize the necessary elements needed to develop as a trader. You will ask a thousand questions and bug every professional trader you meet. You will read a thousand day trading articles. You will start paper trading, develop strategies and setups, and define risk parameters for every trade. You will go on a hunt for self-understanding to master your psychological game. You will visualize every possibility on a trade before you take it. This is the true learning phase. You are trying hard to develop your edge in trading.


Stage Four: The Determined Trader

This is the stage in which you learn to specialize in certain markets and trading methods. Without realizing it, you have finally found your style of trading after hours of hard work and research. You stick to your method and you improve it. You realize that you need an edge whether its tape reading or being a Fibonacci expert. The important thing is you are slowly transforming yourself into a specialized trader. You test your methods and they seem to work. You gain tremendous market knowledge. You reflect back on yourself and you can't help but laugh at your foolishness. Although you have not made enough money to call yourself successful you are proud of your journey and accomplishments. You realize that the Holy Grail is not about technical indicators or price patterns. You calculate risk before profits and place strict money management on all your trades. You cut losses short and learn to scale out on your winners. You start accept losing as a natural part of the game. You take high probability trades that you have tested and feel confident about your setups because you understand that trading is a game of probabilities. Your psychological makeup has changed from an amateur mindset to a professional one.


Step Five: The Consistent Trader

You rely on your trading method and start taking trades systematically. You try to aim for consistency and are meeting your daily goals often. You have reached the conscious competence stage. You are fully aware of your strengths and weaknesses as a trader. At times you feel euphoric and at times you feel pain. But you are able to understand your own psychological makeup to control your emotional swings. You are now able to trade for a living.


Step Six: The Expert Trader

In this final stage, you completely understand the markets you are trading. Being involved in it everyday you are aware of every key price level. You understand market concept and are able to predict the direction of the markets a fairly good amount of time. You pat yourself on your back and take profits as soon as you feel euphoric. You do this because you understand euphoria is the same as emotional trading. You talk to other traders and realize the development stage they are in. People start asking you for trading advice, you publish a book, and you have a specific trading methodology that represents you!

Taking trades come naturally and you are able to get in and out at the precise price levels based on tape. Instead of having the markets take your stop out, you exit when you know you are wrong. You keep your head high but remain humble on the inside. You have now officially graduated the school of the hard knocks.

Entering the trading profession can be a tough journey for many people. Trading is one of the toughest careers that you can choose. If you enjoy the challenge, you will definitely enjoy the feeling of accomplishment. Trading is 30% mechanical and 170% psychological. 200% is required to become a successful trader. Good luck and best of trading.


James Lee is a full-time day trader specializing in the mini-sized Dow futures. His core trading strategy is based on pivot point clusters and Market Profile. You can learn more about his trading methodology at http://www.traderslaboratory.com
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I just wanted to say that your article made alot of sense. I'm currently in Stage I - The Clueless Trader.

I opened a demo a/c with $10,000 to start with. In the short span of a week, I saw the a/c rise to $18,500 and fall to less than $100.

I guess I have a long way to go....

Thanx for your article, it very helpful

____________________________________________

Stochastic Secret

.

Many thanks for the article....hopefully I am at stage 3...note - hopefully.

I have went through the clueless stage, have also been through or at the end of stage 2...as I now realise that a lot of indicators pollute your chart and you can't actually see the action for all the mess.

I am now studying PA, PPZ, Fib's, Round Numbers etc....so hopefully just on the door-step of stage 3.


Best Wishes

Harmudge

I'm at stage 2 maybe. It's the Psychology, it's the hardest.

Is damm true about the traders, one of the best article for me. thank you.

Good Afternoon,

This is a highly valuable article that I hope I would have read when starting my trader Journey in 2006.
After my first account wipeout in 2006, followed with a second wipeout in 2007, I almost gave up until I discover true the meaning of systemic trading and vow to myself NOT to trade a penny until:

1. I can fully backtest a trading strategy successfully to measure it past performance and ensure it can protect itself around adverse market conditions.
2. I'm satisfied with both the forward testing and DEMO trading
3. I can define and explain all the attributes of my strategy and what edge it has against other market participants.

It was around 2010 when I became conscious of the psychological game behind trading even for a trading system designer, and how you need to fight the greed and focus on measurement and consistency.

After countless the trial and error, I think I'm still in the middle of Stage Four, Yes after 15 years...

I think the biggest challenge for me was to survive and find a way to pass stage 3. I had to understand realise the following points:

1. How difficult trading is and the amount of work that need to be done. This can be a stopper when having a fulltime job. At this stage, unless you have a true passion for what you are doing, you'll give up.
2. The true risk that each trade consists of. Why Money management concepts are important and which one(s) will work for you.
   1. Be conscious that even if you put a stop loss at a given price that it might not be filled at that level due lack of liquidity, slippage or worse case a crazy event going on or other numerous reasons creating panic in the markets.
   2. Your losses could wipeout your entire margin, the entire account. So you need to choose you broker carefully and have plans to deal with worse case scenario. What happen if your broken go bankrupt...
   3. structure your margin, risk management and money management so that in a worse case scenario you have enough funds to continue. How much will get back from your broker if it goes bankrupt...

3. Understand where the profit are coming from when you win and were they are going to when you loose:
   1. How much losses are going to your broker vs market
   2. How much wins are coming from your broker vs market
   3. Who are you trading against your broker vs market? who in the market are you trading with? Can you really have a chance against them?

4. You should not trade live unless you understand and can measure: liquidity, volatility, the DoM ... specially if like me you prefer scalping...
5. You need to know that trading strategy should clearly define the following points:
   1. Setups in terms of liquidity, volatility and other market conditions,
   2. How it measure/evaluate Risk Reward Ratio and how that affects its entry rules, exits rules and other filters
   3. Which BIAS is the strategy based on and where is the edge?
   4. What edge in the strategy allow you to make profit, if you can figure this out, then this is just pure luck and highly risky!
   5. Please keep reading on this, there so many great books out there, can't quote them all here but I'll be happy to provide my list

6. What is the true nature of the market you want to trade in. I just want to give some shoutout to ome content creator who help me see that side of the market, Im putting the channels in the order I discovered them:
   1. Pepperstone - https://www.youtube.com/c/Pepperstone
   2. Trade ATS - https://www.youtube.com/channel/UCZf...KAtjCrlIsMAUGA This where I learn the concept of FOMO, understood the roles of MarketMaker, Accumulation vs Distribution
   3. This video from the instituteofTrading -
      Inserted Video
      - I keep re-watching this video from time to time to remind me who I'm trying to trade against.
   4. Michael and his great work - https://www.youtube.com/c/BionicsForexAlgorithmen or https://www.youtube.com/c/BionicsForexAlgorithms . Thank to Michael for his bionic Candles and making me more curious about the DoM

At the stage I'm working on a number of strategies:

1. Trend following
2. Mean Reversion
3. Breakout

I'm a scalper researching how I can have a very small edge that help me grab 1.5 to 2 pips during the ouragan...

Happy trading

Hi

im at the very beginning of this but I’m not afraid to work hard to gain all the information I need to become successful. Could anyone help what book should I buy where I can get most of the information I need? I’m using forums watching YouTube videos but books could help too.

regards
george

[quote=george89;13868001]Hi im at the very beginning ...

Its not a book but warmly recomended
https://www.forexfactory.com/thread/...trader-toolkit

Just dive straight into the fundamentals mate. No indicator, algo, pattern or theory can make someone successful in this area. Always keep in mind that we are trading currencies, which is why we need to know how to apply macroeconomics. Economy is a science, so are the currencies. Get familiar with inflation, growth, unemployment, central bank meetings and talks, interest rates, treasury yields. I don't have any specific book in mind, popular macroeconomics books would do the job.

Also learn "business cycles" very well. Know what causes cycles to change and which instruments gain and lose value during which cycle. Learn these things very carefully.

I am trading for over 3 years, i have started trading in late 2018 and i knew nothing. I have spent almost 2 years on stupid indicators, tried hundreds of them. They always failed me though. But when i started applying macroeconomics things have changed significantly. As a person who struggled a lot in the beginning, i can definitely relate to you. Check my thread, "Nordling's Legacy" if you are interested. Everything is free, no one is going to ask you for a fee or something.

And if someone ever tries to sell you anything in this forum, put them on your ignore list. Real profitable traders don't need your money. Be aware of scammers.

The key to success in trading is knowing how to read price action, and having good risk management. Indicators can be useful, depending on what they do.

I'm not saying what you are doing is wrong. If it is working for you, then keep doing it. The question that you need to ask yourself, however, is can you reach your full potential as a trader doing what you are doing?

Reading price action can be tricky and it can confuse people. Sometimes you buy something and it goes against you. If you think you are right, you should be able to hold and wait. But when trading price action, you buy something and put a tight stop loss, if it goes against you, you are stopped out. Then you decide to sell it, guess what, it started to go up and you stopped out again. Market does these tricks very often. Which is why i think trading higher timeframes are easier and less stressful. Less tricky.

When trading fundamentals, you can reason your losers and winners. Because in that type of trading everything has a reason. Market can move 30 pips without any reason but it cannot move 300 pips without reasons. It is a big move, therefore it has a reason, a dynamic behind it. You can always go back and do some research and understand what you did right and wrong. Fundamentals give you the opportunity to understand it.

Unfortunately in price action, stops are the natural and it is harder to reason why price moved 30 pips against you.

I think in trading trusting in your decision matters. Because if you are wrong you will get stopped out once. But if you don't trust your decisions and change your mind quickly you are likely to get stopped out more than once.

Can i reach my full potential? Yes, i actually get better at trading everytime i make a mistake. You know there is a saying "i either win or learn" Everytime i get stopped out it is not the nature of the job, there is always a reason behind it and i keep searching why i got stopped out. And when i find the reason, that is a lesson learned. It will not be repeated again. So in time, your number of stops decrease. Which is another reason why i find fundamentals very effective and sustainable.