| I am going to take you through the different | | | | will go on a hunt for self-understanding to |
| development stages of a new trader. Most of | | | | master your psychological game. You will |
| this comes from my own experience. Like any | | | | visualize every possibility on a trade before |
| other profession, trading takes years of | | | | you take it. This is the true learning phase. |
| practice to reach the ultimate level. While | | | | You are trying hard to develop your edge in |
| doctors and lawyers have gone through higher | | | | trading. |
| education to obtain their license to | | | | |
| practice, traders are required to obtain | | | | Stage Four: The Determined Trader |
| knowledge on their own. If you are in it for | | | | |
| the quick buck, think again. The challenge is | | | | This is the stage in which you learn to |
| tough but the achievements are rewarding. | | | | specialize in certain markets and trading |
| | | | methods. Without realizing it, you have |
| Stage One: The Clueless Trader | | | | finally found your style of trading after |
| | | | hours of hard work and research. You stick to |
| This is the first stage when you enter | | | | your method and you improve it. You realize |
| trading. You may have picked up a book on | | | | that you need an edge whether its tape |
| technical analysis somewhere, heard of a day | | | | reading or being a Fibonacci expert. The |
| trader making millions, or got lucky in an | | | | important thing is you are slowly |
| earlier stock investment. After all, how hard | | | | transforming yourself into a specialized |
| can it be? The money sounds appealing and the | | | | trader. You test your methods and they seem |
| freedom to be independent sounds attractive. | | | | to work. You gain tremendous market |
| | | | knowledge. You reflect back on yourself and |
| I don't mean to shatter anybody's dream but | | | | you can't help but laugh at your foolishness. |
| those who succeed in trading are the | | | | Although you have not made enough money to |
| minority! Approximately 90-95% traders lose | | | | call yourself successful you are proud of |
| money. This is the cold hard facts. In the | | | | your journey and accomplishments. You realize |
| first stage, every trader is optimistic. You | | | | that the Holy Grail is not about technical |
| open a direct access brokerage account and | | | | indicators or price patterns. You calculate |
| the sound of Level II, ask/bid, and market | | | | risk before profits and place strict money |
| makers make trading sound like hi-tech video | | | | management on all your trades. You cut |
| game. In reality you have no clue. You will | | | | losses short and learn to scale out on your |
| buy just to see the market reverse and you | | | | winners. You start accept losing as a natural |
| will short just as the market starts to | | | | part of the game. You take high probability |
| rally. Most of your trades are done | | | | trades that you have tested and feel |
| emotionally. You buy just because the markets | | | | confident about your setups because you |
| feel strong without any logical reason. You | | | | understand that trading is a game of |
| are in the unconscious incompetence stage. | | | | probabilities. Your psychological makeup has |
| You have no clue how the mechanics and | | | | changed from an amateur mindset to a |
| psychology of trading works. What's worse? | | | | professional one. |
| You are not aware that you don't know. Most | | | | |
| traders will blow their entire account at | | | | Step Five: The Consistent Trader |
| this stage. | | | | |
| | | | You rely on your trading method and start |
| Stage Two: The Rookie Trader | | | | taking trades systematically. You try to aim |
| | | | for consistency and are meeting your daily |
| In this stage you have lost enough money to | | | | goals often. You have reached the conscious |
| realize what you are doing is completely | | | | competence stage. You are fully aware of your |
| wrong. In other words, you start to realize | | | | strengths and weaknesses as a trader. At |
| that you don't know. You will then devour | | | | times you feel euphoric and at times you feel |
| every trading book available. You will study | | | | pain. But you are able to understand your own |
| and purchase Technical Analysis of Stock | | | | psychological makeup to control your |
| Trends by Edwards and Magee believing price | | | | emotional swings. You are now able to trade |
| patterns are the Holy Grail. You will | | | | for a living. |
| memorize every technical pattern known to | | | | |
| man. You will read about the ADX, moving | | | | Step Six: The Expert Trader |
| averages, Fibonacci lines, pivot points, | | | | |
| MACD, Bollinger Bands, channels, etc... You | | | | In this final stage, you completely |
| will go through the "help" tab on your data | | | | understand the markets you are trading. Being |
| vendor to read about every single technical | | | | involved in it everyday you are aware of |
| indicator available. You will plot them on | | | | every key price level. You understand market |
| your charts and spend hours looking for an | | | | concept and are able to predict the direction |
| indicator that works. You will be extra | | | | of the markets a fairly good amount of time. |
| confident now because think you have found | | | | You pat yourself on your back and take |
| the magical technical indicator. | | | | profits as soon as you feel euphoric. You do |
| | | | this because you understand euphoria is the |
| Yet, you still continue to lose money | | | | same as emotional trading. You talk to other |
| everyday. You realize that your indicators | | | | traders and realize the development stage |
| are lagging and that every other new trader | | | | they are in. People start asking you for |
| is probably looking at the same thing. You | | | | trading advice, you publish a book, and you |
| realize that you are the sucker. | | | | have a specific trading methodology that |
| | | | represents you! |
| Stage Three: The Developing Trader | | | | |
| | | | Taking trades come naturally and you are able |
| You start to realize the amount of work | | | | to get in and out at the precise price levels |
| required and the immense learning curve that | | | | based on tape. Instead of having the markets |
| you must overcome to understand the markets. | | | | take your stop out, you exit when you know |
| At this point, traders may find it | | | | you are wrong. You keep your head high but |
| overwhelming and quit. Stronger minded | | | | remain humble on the inside. You have now |
| traders will push their motivation harder to | | | | officially graduated the school of the hard |
| start their second spurt for knowledge. | | | | knocks. |
| Hunger and passion is needed to clear this | | | | |
| stage. You will look for reference online, | | | | Entering the trading profession can be a |
| join mentor programs, chat rooms, and | | | | tough journey for many people. Trading is one |
| seminars. You realize the necessary elements | | | | of the toughest careers that you can choose. |
| needed to develop as a trader. You will ask a | | | | If you enjoy the challenge, you will |
| thousand questions and bug every professional | | | | definitely enjoy the feeling of |
| trader you meet. You will read a thousand day | | | | accomplishment. Trading is 30% mechanical and |
| trading articles. You will start paper | | | | 170% psychological. 200% is required to |
| trading, develop strategies and setups, and | | | | become a successful trader. |
| define risk parameters for every trade. You | | | | |