I come across some pretty awesome articles on Twitter. A fellow I follow Is Colibri Trader who writes some of those pretty awesome articles. When I read the 4 stages of a Trader I knew I had to let you all read it. At least, read my version of it. I hope you enjoy it as much as I did.
Stage 1 The Neophyte
You enter the Neophyte stage when you first run across online trading and it hits you as hard as a Mack Truck hurtling down an interstate. Coming across online trading is similar to the feeling you would get if you stumbled across a roll of sweet-smelling $100 bills just lying on the side of the road.
Then, to make your discovery all the sweeter, you realize you can do this at home. In your jammies. No more commuting and dealing with jerk drivers. Your commute will be from the kitchen (with coffee in hand) to the living room. You’re even thinking of turning your man-cave into an office!At this stage, you are totally oblivious to the dangers of trading. You have no clue you have no clue. In this stage, you are full of enthusiasm and think you can conquer the world. In this stage, you quickly come to resent weekends because the markets are not open.
This is where you drink too much of the kool-aid and you end up staggering into a crevice. A crevice called – leverage. Your brain is working overtime with options, futures, forex. But nary a thought is given to the dangers that leverage and trading on margin carries.
I entered this stage in 1999 when it was almost impossible to lose money. As I’ve related to you before, I made 1/4 of Million dollars in a very short time and thought I would be a millionaire by the end of the year. I had no idea what was in store for me. I had no clue I had no clue.
This is the stage that chews up and spits out 30-40% of “traders.”
Level 2- The Student
The second level of trading is the learning period. In The Student period, you start to get an idea of the immense field you’ve ventured into and how difficult it is to grasp it all. You wake up in the middle of the night thinking about what you need to do to “learn more.” You devour anything related to trading from:
- trading articles,
- free e-books,
- hard-copy books
- paid courses.
This is the stage your trading style starts to emerge. You begin asking yourself questions like: Should I be a day trader? Maybe, I will be better off as a long-term position trader or swing-trader. What would be the best strategy to fit in my daily agenda?
This is the level where you are also asking yourself should I quit my job to start trading full-time, in my jammies. This is also where you bounce from one trading strategy to another like a kid in a trampoline park. Boing. Next strategy. Boing. Next strategy. Boing.
This is the stage where you listen in rapture to your next door neighbor as he tells you, “When the 6 minute MA climbs above the 13 minute MA on a 15-minute chart, you go long.” No quantifiable data to back up this hogwash but, hey, you’ll try anything. This is the stage you put your hands over your ears and yell, lalalala, when you hear, “Money management” What’s that? That’s for the other guy.
I don’t have room here to list all the strategies, systems, and hair-brained ideas I’ve tried. Someday I will write a newsletter about them all. If I can remember them that is. This is where I was writing trading articles and ending them all with, “Plan your trade and trade your Plan.” I just didn’t know what the “Plan” was – yet!
This is the stage that throws 20-30% of the remaining “traders” in a blender and sets it to grind.
Level 3- Just-about-there Trader
Now we’re getting somewhere. We’ve survived the spit and chew stage. We’ve managed to avoid the blender.
As a Just-about-there Trader you are at the level of trading where you’re not making the same silly mistakes that have plagued you up to now. This is the stage you really shine and start bragging in front of your colleagues and friends.
Maybe the time has come to really quit your boring job and working full-time as a trader. The world is your oyster and you are asking yourself, “Why didn’t I start trading earlier in life?” You are almost breaking your arm patting yourself on the back. (I remember waking my husband from a deep sleep because while trading Oil Futures during the night and had made an awesome trade).
You’re starting to think you could be the next Larry Connors and maybe you should create your own indicator. “The TraderJanie Stochastics?”
Then you get the dreaded “margin call.” It is without a doubt the worst trading day in your life. You want to cry (I did!). You get the first real dose of trading reality. You start yelling, “I didn’t know anything about Reg T, Margin Maintenance.”
It was here I took a weekend course from Larry Connors and got the code that then became the genesis of QiT. This was the stage where I found my “plan.”
This is the stage where another 20-25% get taken to the woodshed and never return.
Level 4 Consistently-successful Trader
I’m not sure if you’re adding it all up but only 5% of traders are left.
This percentage may not be right. It may be more like 0.5%. What is true though is that only a fraction of traders really makes it this far. Reaching this level does not mean that you will never fall back. There is no guarantee that you will be a 5%er forever. It means though that you have learned the ropes of trading and know how to maneuver in these shark-infested waters.
At this stage you have:
- Found a system that fits your style
- Traded the strategy long enough to know it was well-designed and well thought-out
- Been trading it long enough to know extended periods of drawdown will happen
- Learned to deal with those extended periods of *&*((*&^%$%^%
- Believe the system will move you to cash to protect your hard earned funds
- Come to understand your own trading personality and compensate for your shortcomings (we all have them and we’ll have them for life)
Being a 5%er means that you have displayed stronger character than the majority of traders. You can finally pat yourself on the back. But you don’t. You don’t because you have learned the hard way that the more you brag about it, the more excited you become typically leads to only one thing- losing your 5%er status.
Let’s wrap this up
Being a great trader is not a natural talent. It is a skill that traders develop over the years. This level of trading teaches you how to live in the unknown. Being a 5%er means that you follow the rules of your strategy without heartburn. At this level of trading, you are not thinking about trading systems anymore, you’ve found the one that fits you.