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