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6 Stages Of A Trader

  
  Education
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Very interesting description of how traders evolve over time. The pieces of advice Bo Yoder andVadym Graifer give at the end of the article are spot on. Definitely worth reading as every trader worth his salt can relate to all the different stages. Enjoy.
Stages of a Trader
Stage One: The Mystification Stage (by Bo Yoder)
This is where the neophyte trader begins. He has little or no understanding of market structure. He has no concept of the interrelationship among markets, much less between markets and the economy. Price charts are a meaningless mish-mash of colored lines and squiggles that look more like a painting from the MOMA than anything that contains information. Anyone who can make even a guess about price direction based on this tangle must be using black magic, or voodoo.
However, as one begins to observe, read, study, the mess may begin to resolve itself into something that may make sense. Sort of.
Stage Two: The Hot Pot Stage
You scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon which pops up regularly and seems to “work” pretty well. You focus on this pattern. You begin to find more and more instances of it and all of them work! Your confidence in the pattern grows and you decide to take it the very next time it appears. You take it, and almost immediately your stop is hit, and you’re underwater for the total amount of your stop-loss.
So you back off and study this pattern further. And the very next time it appears, it works. And again. And yet again. So you decide to try again. And you take the full hit on your stoploss.
Practically everyone goes through this, but few understand that this is all part of the win-lose cycle. They do not yet understand that loss is an inevitable part of any system/strategy/method/whathaveyou, that is, there is no such thing as a 100% win approach. When they gauge the success of a particular pattern or setup, they get caught up in the win cycle. They don’t wait for the “lose” cycle to see how long it lasts or what the win/lose pattern is. Instead, they keep touching the pot and getting burned, never understanding that it’s not the pot (pattern/setup) that’s the problem, but a failure on their part to understand that it’s the heat from the stove (the market) that they’re paying no attention to whatsoever. So instead of trying to understand the nature of thermal transfer (the market), they avoid the pot (the pattern), moving on to another pattern/setup without bothering to find out whether or not the stove is on. (more…)

Being confident

  
  Education
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Being confident is the ultimate prize for any trader; some call it being in the “zone”, some others talk about finding the “Holy Grail”. What it really means is that, as for any performance based endeavours, trading will satisfy you only once you reached the state where “you know what you do”. Trading is not different from any other demanding undertaking, it requires mastering the different stages of the learning curve and the quality of this learning process depends on how focused and disciplined the trader is in honing his acquired skills. Once the trader has identified, through practice, what markets, methodology and timeframe he is comfortable with, he will slowly gain confidence in himself by systematically repeating all of the steps that constitute his trading plan until it becomes part of his personality. Just as for a tennis or a golf player, being confident makes the difference between winning and losing, so it is for the trader. And, just like the tennis or golf player, the trader can only gain this confidence through a well worked out set of skills, a battle plan and the continuous practice at a performance level. Losing focus or relaxing the discipline will very rapidly threaten the trader’s confidence. Hence, it is of the utmost importance to understand that this virtuous circle has to be maintained during every trade. And here we touch the challenge for any trader: only the repetitive and focused practice of his plan will ensure that he will stay confident in his trading. This can only be achieved through a balanced and healthy way of living and a sound detachment of the day to day results.

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