In this article, we look at the typical journey of a retail trader. We break down the various phases you will go through on your path to profitable trading as well as the pitfalls you will encounter and how to progress from one phase to another successfully. There is always a battle between perception versus reality and the goal is to stay focused on the reality while getting rid of any inaccurate perceptions of trading.
If you are like the majority of people out there then chances are that you came across trading through a retail portal. You may have seen a film or documentary on television which showed a stock market trading floor buzzing with activity or read about a hedge fund manager who had recently made an obscene amount of money on a trade. It could have even been knowing someone who works in the city or wall street for a top bank and is making millions a year. Whichever one of these it was, the end outcome was the same – a seed was sown in your mind telling you that you could become rich through the financial markets.
I remember my first introduction to trading was watching the movie “Trading Places” with Eddie Murphy! I remember the scene towards the end where the Duke brothers were buying Orange Juice futures based on expecting a bad harvest only for Billy Valentine (Eddie Murphy) and Louis Winthorpe to patiently wait until the price had risen to start shorting as they knew that the harvest was good that year and prices would drop as a result. Prices indeed dropped and Valentine and Winthorpe made a ton of money in the process while the Duke brothers lost everything! For a long time, I wondered how exactly did they do that and what actually took place?
So how do you start a career in trading and what does the typical journey look like? The following picture illustrates what most people go through. I found it on another website but liked how it captured everything:
Phase 1: The Starting Point
The most important part of the journey is knowing why you want to be a trader. Why do you want to do this in the first place? What do you want to get out of it? Is it just a money thing? Is it a passion? Is it something that has been at the back of your mind for a while? It’s crucial that the reason why you’re doing this is much more than just money. The reality is you won’t make money for some time so you need something deeper to keep you motivated during those times. The most successful traders I know are people who simply love the markets and are perpetually fascinated by trading. For them it’s not even a job but a passion which they leave breathe and eat every day.
Every trader will be tested and the difference between success and failure can come down to your reason why. Whenever I mentor new traders, the first question I ask is “why are you doing this” because that tells me how dedicated they will be to becoming a successful trader. Remember 95% of traders fail so in order for you to be in the top 5% who make money, you need to think differently and one of those areas is in having a rock solid reason why. If someone says “I want to do this so I can make a lot of money” I know that 12 months later this person is likely to move onto something else. If on the other hand, they say something like “I am fascinated by the markets and believe I have what it takes to be a fund manager. I want to provide the highest level of income I can for myself and my family and am ready to do whatever it takes to make it happen” then I know this person has thought through things much more seriously.
Phase 2: The Initial Period
The initial period is where bad habits are normally formed. This is the first 6-12 months where you will typically spend countless hours reading forums, trading articles, books, strategies, and trading. Make no mistake, trading is addictive and you could easily spend 10 hours in front of a screen without noticing it! Most people at this stage will be looking for the Holy Grail or some magic trading strategy which will make them instant millionaires. Your trading results will be mixed at best or very poor on average – you will either be losing money and not understanding why or just feel like you don’t get it.
Most traders in the Initial Period are strategy focused and spend their time searching for the perfect strategy. You get an email telling you a new strategy has been released which is giving 30% return a month and you jump on it. You soon discover that this is just a marketing gimmick and struggle to make money from it consistently. You then come across a forum where someone is describing their trading strategy for free and willing to help other newbie traders. This person sounds experienced so you drop everything to follow him/her. A few months in and you are still struggling to understand what this person does and how they do it as they apply a lot of discretion that you simply haven’t yet developed.
This cycle of searching for something new and then finding it doesn’t quite work leaving you to search for something new can go on for years. It only stops once you realize that you need to learn how to do this properly from a professional. It will probably involve you paying for education or mentorship but you get to the point where you prefer to pay for something solid rather than look for shortcuts that don’t exist.
Phase 3: The Trial – Give up or Continue?…
The third phase is the trial period. This is where you are tested to see how badly you want this. Is it just a get rich quick scheme you’re looking for or are you willing to put in the time and effort required to master your craft? What if this takes you many years? How long and how deep are you willing to go on for until you get your prize? It is at this stage that many people give up, they spend a year or so trying to figure the forex or stock markets out and eventually decide they can’t do it. They then tick trading off the list of money making ideas they tried and move on to the next thing.
What a lot of people fail to realize is this – trading takes years to master. I don’t know a single person who trades profitably that did so in a short period of time – it just isn’t realistic. Why? Because you need to understand the business you’re in. Every time you trade you are basically competing with someone else who is willing to take the opposite side of your trade and so you need to ensure you have an edge. How can you expect to take on the big banks and institutions who have more money than you and more brain power to throw at the markets without dedicating a proper amount of time to the craft yourself? How long does it take to become a brain surgeon? Years and years. Now obviously I’m not saying that you won’t make money for years and years, but I’m just highlighting the fact that you need to treat this business seriously because the big boys you are up against take it very seriously.
Phase 4 – Realisation – I can do this!
Phase 4 is make or break – it is where you need to believe that you can actually do this and that you have the tools at your disposal. All you need is some guidance and direction for you to follow. This happens if you are fortunate enough to come across someone who can mentor you. This can be in the form of a company like Trade Simple Trade Smart or a website like JustAboutTrading.com or it can be via a successful trader that you personally know. You need someone to show you what to do, how to approach the markets, which strategies to use, how to think and act like a successful trader and go through many lessons on trading. If you are in this position then it’s just a matter of applying what you learn diligently and correcting your mistakes on the path to trading mastery. You realize that the only thing holding you back from trading success is YOU!
The reason why most traders give up is because they try and do it all on their own. They don’t want to spend money learning how to do it properly and they listen to all the opinions and comments of others on forums telling them that they just need to keep applying themselves and they will succeed. This is not how you become a better trader. This is dangerous because if we study how traders become successful it is always as a result of learning from someone experienced and never on their own trying to figure it out. I’m not saying this to sell our trading courses but simply stating the obvious – going it alone will lead to the highest chance of failure because you don’t know what works and what doesn’t. How do bank traders become successful? By going through comprehensive professional trading courses, do you think the banks will trust them with their money otherwise?
Phase 5 – Mastery!!!
The final phase is Trading Mastery, where you are now able to confidently navigate the forex or stock markets and finally able to make money consistently month on month. You are now at the point where you can take some profits out and spend it or pay bills with it or simply reward yourself! You are positive about your trading career and are happy about the future. You feel a sense of fulfillment at having achieved your dream of being able to support yourself or your family from your trading income. Even if you are not rich yet, you can see that all you have to do is trade with larger capital to get to your financial goals. Imagine what a great feeling that would be or how you would feel to be in that position!
Trading Mastery requires constant dedication and accepting that you will be a lifelong student of the markets. You might be trading short term for income, long term for capital growth or swing trading but whichever approach you adopt you know what kind of trader you are and what your outcome is short term and long term. You accept that trading is a business and you take this business seriously. You look forward to trading with larger capital and have been approached by investors who have followed your progress and are now offering you capital to trade on their behalf. You accept that you will need to remain disciplined and stay humble in your pursuit for trading excellence as you understand your mindset is your most powerful weapon. You spend the majority of your time working on your psychology which is the hallmark of every seasoned trader.
Over to you….
So now where are you on your journey and which phase are you currently stuck in? Hopefully, this article will give you some insights into what you need to do to progress further and advance towards the goal of successful trading and to be a better trader. If you need any help with any aspect of your trading then simply get in touch with us as there is nothing we love more than helping other traders to become profitable!