PHASE 1: “INNOCENT AND INNOCENT”
This is the first step when you get into trading. You know trading is a good way to make money, because you have heard a lot about it and about millionaires… Unfortunately, just like when you first started driving, you think it is easy – after all, you realize how hard it is… Markets go up and down… what is the secret – find out! Unfortunately, just like when you first got behind the wheel, you quickly realize that you have no skill at all. You trade too much and risk too much. When you open a position and it goes against you, you jump out and open another position opposite, and it goes against you… and so on and so forth… You may have some initial success, which is actually quite bad because it tells your subconscious “oh, trading is easy” and you start risking more. You want to make back what you lost and start “doubling” every time you trade. Sometimes you win, but more often than not you are bruised and hurt, losing big. You forget that you have no trading skills. This phase usually lasts a few weeks, and the market often changes quickly and you are sucked into phase 2.
PHASE 2: BE AWARE OF YOUR “INCOMPATIBILITY” IN TRADING
At this stage you realize that there is a lot to do, a lot to learn, and you have to learn some things… You know that you don’t actually have the trading skills, you don’t know enough to make a profit. You start buying systems and e-books, reading trading websites from the US to the UK to the Ukraine and you start looking for the “holy grail”. At this stage you are a system tester, switching from one method to another every day and week and never sticking with it long enough to see if it actually works. Every time you come across an indicator you convince yourself that it will make a difference. You test automated systems on metatrader, you play with moving averages, Fibonacci lines, support, resistance, Pivots, divergences, DMI, ADX and a hundred other things in the hope that your “magic” system will work today. You pick tops and bottoms, try to find exact reversal points with your indicators and you find yourself losing money, even losing more money because you are so sure that your system is right. You join chat rooms and see other traders making money, and you want to know why you are not - you ask a bunch of questions, some of which are so stupid that you look back and laugh. You come to the idea that all the people who are winning are liars, they can't win because you did everything you could and you can't, so why can they?You know as much as they do and they are probably liars. But they are there day after day, their accounts grow while yours does not. You are like a little boy, the traders who make money give you advice but you are stubborn and think you know it. You ignore the advice and continue to overtrade even though people say you are crazy, you still think you know. You think and buy signals from some people but this does not help you. You even approach a “Guru” like Rob Booker or someone who promises to make you a profitable trader (often for a fee of course). No matter how good the guru is, you cannot win because there is no substitute for experience and you still think you know it. This phase can last a very, very long time – my understanding from talking to other traders and from personal experience is that it usually lasts from a year to almost 3 years. This is also the phase where you almost want to give up because you are discouraged. About 60% of new traders drop out in the first 3 months – they give up and that’s good for them – think about it – if trading was easy we would all be millionaires! About 20% stick it out for a year and then blow their account, of course. What will surprise you is that the remaining 20% stick it out for about 3 years – and they think they’ve survived – but even after 3 years only 5-10% are able to stick it out and actually make consistent money.By the way, these are real numbers, not my own - so when you're in the game for 3 years, don't think it's going to be a smooth ride from there. Many people have argued with me about the 3 year period being ridiculous as none of them have been trading for 3 years - if you think you know better, ask around and see if anyone has been trading for 5 years and ask them how long it took to become consistently profitable. I understand there are exceptions - but I've never seen one. Eventually you'll end up in this phase. You may have committed more time, effort and money than you thought you would, burned a few accounts, given up 3 or 4 times, but it's in your blood now. One day, at some point, you'll enter phase 3...
PHASE 3: EUREKA MOMENT
By the end of the second stage (phase 2), you realize that the difference is not in the systems. You realize that you can make money with just a moving average, nothing else, if you have the right mindset and money management. You start reading books on trading psychology, empathizing with the characters portrayed in these books, and finally you reach the “Eureka” moment. This “Eureka” moment creates a connection with what is already in you. You suddenly realize that you, no one else, can predict exactly where the market will go in ten seconds or 20 seconds, let alone in 20 minutes. Because of this discovery, you stop caring about what other people think – how this news will affect the market, how that event will affect the market. You become an individual with your own method. You start focusing on just one system and honing it your way, you start having fun and defining your risk threshold. You start taking trades when your system shows a high win rate. When a position goes against you, you don’t get angry because you realize you couldn’t predict it, and you close it quickly when the market goes against you. The next trade or the one after that or the one after that has a higher probability of winning because you know your system works. You stop looking at the outlook of each trade and start looking at the weekly numbers, knowing that one bad trade doesn’t mean your system is bad.In that moment you realize that the trading game is all about one thing: sticking to your system and being disciplined in every trade no matter what, because you know that you will win in the end. You learn about money management and leverage, how much risk you can take on your account, etc., etc. and now it really sinks in, and you smile when you think back to the people who told you this a year ago. You weren’t ready then, but you are now. The “Eureka” moment comes when you truly accept that you can’t predict the market.
STAGE 4: CONSCIOUSLY IMPROVING ABILITY
You trade when your system tells you to. You take each trade equally easy, win or lose. You take the risk of letting your winning trades run their course because you know your system makes more money than it loses, and you close a losing trade quickly so it doesn’t hurt your account too much. You are now at a point where most of your trades are breaking even, some days you win and some days you lose, some weeks you make a hundred pips and some weeks you lose a hundred pips – generally you are breaking even and not losing money. You are now conscious that you are making progress and you are gaining the respect of other traders as you discuss your trades with them every day. You still have to work and think about your trades, and as you continue this you start to make more than you lose, consistently.
You start the day winning 20 pips, losing 35 pips but you don’t think you’ve given back what you earned because you know you’ll get it back. Now you’re making consistent money week after week, 25 pips one week, 50 pips the next… and so on. This lasts for about 6 months.
STAGE 5: UNCONSCIOUS ABILITY
Just like you cook – or like driving, every day you sit in the trading seat – you now do everything unconsciously. You are on autopilot. You start taking bigger trades and winning 200 pips a day doesn’t excite you any more than winning 1 pip. You see the newbies in the forum shouting “go dollar go” as if they are urging a horse to race in a major national championship, and you see yourself – but years ago. It’s like a trading utopia – you have truly mastered your emotions, and now you are a trader with a very high growth rate. You are a star in the chatroom and people listen to what you say. You recognize yourself in their questions from about 2 years ago. You advise them, but you know that most of it will fall on deaf ears because they are immature children and some of them will reach where you are now - some faster and some slower - in fact many, many never make it past stage two, except for a few. Trading is no longer exciting - in fact it is a bit boring - like everything else in life, when you get good at it, or it is just a job - it becomes boring. It is just a job, that's all. Eventually you leave the chat rooms and pick a few people to talk about the markets with, but you are no longer influenced by them.All the time you are now focused on honing your methods to get the most profit from the market without increasing your risk. Your trading method hasn’t changed – it’s just improved – you now have what women call “intuition”. You can now hold your head high and say “I’m a currency trader”, but to be honest, you don’t want to bother anyone with saying that – it’s just a job like any other. I hope you enjoyed reading about this journey to becoming a trader and I hope you find something to relate to here. Remember that only 5% actually succeed – but the reason for failure is not ability but resilience, the ability to change your perception and the ability to change your patterns when things change. The loser is the one who wants to “get rich quick”, approaches the market and puts on blinders so they don’t see the obvious – a kind of “this is how I think about it and it has to be this way” mentality – refusing to “digest” things that change that perception. I’m happy to say that the reason I got into trading was to “get rich quick”. Now I think of it as “get rich slow”. If you’re thinking about quitting, I have a piece of advice for you… Ask yourself “How many years would you spend in college if you knew you were going to make $1 million a year after you graduated?””
Take care and good trading!
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