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Soultrader

A New Traders Journey to Success

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In this thread I am going to take you through the different development stages of a new trader. Most of this comes from my own experience. Like any other profession, trading takes years of practice to reach the ultimate level. While doctors and lawyers have gone through higher education to obtain their license to practice, traders are required to obtain knowledge on their own. If you are in it for the quick buck, think again. The challenge is tough but the achievements are rewarding.

 

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.

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Once you are able to trade following youre setups religiously you will turn into an automatic pilot mode. Meaning.... just by watching your charts you can idenitfy all your setups easily and take you take each trade as if you just got dealt a decent starting poker hand.

 

Stage 5 will come naturally with experience. Have a journal and identify why you took the setup, your psychology during the time of the trade, and rate each trade. Reflect back on it and fix whatever you need to fix. Practice will take you to Step 5. I think for most new traders getting past Stage 3 is the hardest. They will fail before they even reach stage 4.

 

Stage 6 is reached from experience. Traders start building intuition...something that can only develop through thousands and thousands of obsevertation and trading. Experience is the greatest teacher in trading.

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I breeze pass the first three stages. I understand what you as saying about stage 5 coming naturally. Because without you mentioning it I have been taking notes eversince I began. I keep re-editing and changing. Little by little I am figuring out what aspect of my set-up is working and what part is not. Slowly but surely I am getting there. But a I will look for all the help i can get. I dont believe in automated systems for indications I believe I must learn the hard way to figure out the market.

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  forex_gump said:
I breeze pass the first three stages. I understand what you as saying about stage 5 coming naturally. Because without you mentioning it I have been taking notes eversince I began. I keep re-editing and changing. Little by little I am figuring out what aspect of my set-up is working and what part is not. Slowly but surely I am getting there. But a I will look for all the help i can get. I dont believe in automated systems for indications I believe I must learn the hard way to figure out the market.

 

 

You are definitely on the right track forex_gump. There is no shortcut in learning the markets. The hard way is the right way... it will pay off in the long run. Good luck to you ;)

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I believe I am at stage 4 now. I am now only day trading one future market on full-time now. I have back-tested and forward-tested the market with one single trading strategy. The win/loss ratio is 40/60% but the positive return is about 20 to 30% per month. Pretty good right! But in real trading, I am still losing money every month for the last two years because when I analyzed my trading activity every month, I realized that I only followed my trading strategy on about 30% only.

 

I know that not following my tested trading strategy religiously is the main problem. But can some kind souls out there tell me how can I follow my trading strategy on 100%, day in and out without any slight deviation. I already tried for almost two years already but still can't. Please help.

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It's possible your trading plan is not detailed enough to let you deliberately winging it or re-interpret your way. Your trading plan must be detailed that there is no ambiguous situation. All situations must be already determined and settled in advance.

 

The other possible problem is you have no confidence in your strategy, meaning your strategy doesn't fit your personality. Some people can stand losing $200 per trade while another $1000 per trade. You have to learn how much is the max you can handle without going berserk and lose control of yourself and get emotional. Find out for yourself your tolerance or boiling point and find a strat or market that fit this criteria.

 

Lastly, see a shrink, you may have some other factors in your life that might not giving your trading a chance to thrive. Something may be expressing itself into trading and you don't know about it. Ask alot of questions on why you overtrade and cannot follow rules. Write a journal and record or tape yourself, audio and visual and replay them and see how you are when you're trading. Is it you? or is it someone you remind yourself of? Check out james_gsx' post. Very enlightening.

 

Good luck. Ask if you have questions.

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Excellent post. Can totally relate. I'm currently coming out of stage4 and trying to be stage 5. It's tough. Mentally more than anything. Has taken 5 years to get to the start of stage 5. But the key things I have learnt are:-

1) know thyself! Are you impatient? Quick tempered? complacent? Risk averse? Insecure? Lazy? If you don't know beforehand, you will certainly find out along the way.....

2) money & risk management,

3) find a setup/market that suits your personality (see 1)

4) focus only on the setups NOT the $

5) never, ever give up!

 

Nice one Soultrader - excellent summary.

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Soultrader, this is awesome!! What a great way to describe the journey. I am very new, only have been at this for 3 months, but I went to stage three, as I didn't allow myself to make foolish mistakes. I knew enough, that what I don't know, I better not do, at least not too much to cost me too much.

 

I just joined this site and pretty glad I did.:)

 

Eva

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It's interesting, I THOUGHT I had a well laid out trading plan. But the more real time experience I get, the more I find myself seeing better setups and ignoring the ones I put in my plan. My trading is getting better and more consistent, although I still find myself shooting from my hip and taking bad trades for no reason. When this happens I walk away for a while and get my mind off trading.

 

Now the hard part is writing down the trades I see setup in real time and putting them on paper for my trading plan.

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Decades ago I watch a young man on a tower up about 10 feet dropping tools. I asked why he was dropping tools and he said "I must learn not to go after tools if they are dropped or I will go down with them. I must learn this before I can work on towers."

 

A bad trade is the same as a tool dropped from a 500 foot tower. Don't go after them just let them go or you'll go down with them. You must learn this before you trade!

 

Nice article...thanks for all!

 

Phantom of the Pits

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Soultrader-

Thanks for a great post. Stage 4 right now and the dream is to one day be able to go to my wife and say: "Honey Look- I can legitimately make more money by quitting my job and trading full time"

 

I have already and regularly make more money before 8:00 AM than I will working my day job- it feels good, yet frustrating at the same time- making a nice $400 score prior to going to work for 8 hours- to make 1/4 of that- makes you a bit frustrated.

 

But that is why we have dreams and to keep working towards them!

Sledge

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I have been watching the emini russell for quite some time and paper trading. But I am still having a problem to come up with a day trading methodology to use on a consistent basis. The market seems to move all over the place and everyone keeps saying indicators are useless. Are there a few forums here where people have laid out in detail their trading methodologies of entering and exiting tdes? I would love to read through and study what other traders are using successfully. I know it might not be successful for me, but it would be a learning experience. This forum is so big it is hard to read everything or find things. I know there are probably many great traders here who have probably shared what they do on a daily basis. Thank You!

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Guest forsearch

I guess the question is...

 

Why would a successful trader want to give up their edge for everyone else (like you and me) to copy?

 

-fs

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  forsearch said:
I guess the question is...

 

Why would a successful trader want to give up their edge for everyone else (like you and me) to copy?

 

-fs

 

Wow, we finally agree on something FS.

 

;)

 

You have to find what works for you to the above poster. There is a TON of info right here on TL. Now what YOU have to do is spend time reading and studying. In other words, THIS JOB REQUIRES TIME AND EFFORT ON YOUR END FOR IT TO WORK.

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  Phantom of the Pits said:
Decades ago I watch a young man on a tower up about 10 feet dropping tools. I asked why he was dropping tools and he said "I must learn not to go after tools if they are dropped or I will go down with them. I must learn this before I can work on towers."

 

A bad trade is the same as a tool dropped from a 500 foot tower. Don't go after them just let them go or you'll go down with them. You must learn this before you trade!

 

Nice article...thanks for all!

 

Phantom of the Pits

 

Wow! This is usually a newbie habit, trying to save what's already lost to save face or pride. Try that and the market will make you even more foolish then you already are. Better to be solvent fool than a dumb, insolvent fool.

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