The three stages of the trader

To reach trading enlightenment, there are three stages to pass through … Take a look at them and judge whereabouts on the journey you are …

I know that I have personally spent a long time flitting between stages 1 and 2, before the penny finally started to drop!

While we’re stuck in the first two stages, as traders we’ll struggle to find success because we’re always going to be looking for solutions in the wrong places. But once you’ve hit level 3 – trading enlightenment! – we can pinpoint the things can control and will find that we’re trading in harmony with the market, rather than butting up against it.

Stage 1: Euphoria

I’ve heard about this forex stuff … I’ve read about the amazing money to be made … And I’m all fired up to get started.

Heck, if that guy I read about on the internet made 10% gains in one month, then I’ll be able to double my money in less than a year … And if I compound my winnings I can make even more … And, if I just up the risk levels by a fraction, I can make money even faster …

… This is genius. Why didn’t I think if it before!

I’ve just placed my first trade and – guess what – it’s won.

This is so easy I might even put some more money into my trading fund, that way I’ll reach my financial goals even faster …

Stage 2: Denial

After two profitable weeks, I was so pleased with the profits I was making that I decided to double my stakes, so I’m now risking just 4% on each trade. That still seems very cautious and sensible to me.

However, I’ve now just hit 5 losing trades in a row and have lost 20% of my money.

I followed the instructions I was given to the letter, so this isn’t caused by anything I could have done wrong.

The trading history of this strategy shows no losing runs on this scale – it must be lies.

Something must be wrong with this strategy. Either the person selling me signals is a scammer … Or my broker is running my stops …

I’m furious. I feel like I’ve been robbed. I’m now seriously out of pocket and I want the person to blame brought to account.

Clearly this loss has been caused by a faulty trading strategy. And to prevent this happening again, I will fix the problem. I can see that if I’d added a MACD filter to my trade set-up, I would have avoided 3 out of these 5 losers – I’ll add that to my trades in future.

Stage 3: Enlightenment

After yo-yoing between stage 1 and stage 2 more times than I’d like to admit, I’ve come to an important realisation.

I, and only I, can take responsibility for my trading decisions.

Despite what I’ve been told repeatedly, I genuinely held on to the belief that I could find a system that could win all the time. I now realise that I was deluding myself.

I now know that there will be losing trades … There will also be losing weeks … Losing months … And even losing years. When I forget this, I look at the results of top hedge-fund managers and look at the serious ups and downs their careers inevitably take. This reminds me that the path I’ve chosen is a bumpy one.

Trading is full of many wonderful benefits, and has the power to bring me financial freedom, but it’s also going to have some serious dips along the way. If I’m not prepared for them, I’ll never reach my goals.

I will no longer follow anyone else’s signals unless I’ve tested them and am convinced of the results. If the results disappoint, I have only myself to blame. And I know that while historical records are very valuable, they can never give us guarantees of what the market will do in the future – absolutely nothing can. That’s what makes trading so exciting – and so frustrating!

I understand that the most important thing to learn is good, careful money management. I will not take short cuts to profits by increasing my risk. Instead I focus my attention on not losing the money I have. Even in the good times, when I’m enjoying a great winning run, I will trade as if my longest losing run is just around the corner.

The brutal reality of successful trading is taking ownership of the choices we make

The very best we can do with our trading is to look at all the information we have available … to weigh up the pros and the cons … and then to take a risk. Trading inherently involves a degree of risk, and we just can’t get away from it.

It’s exactly that risk that brings the benefits of trading as well as its downsides. Without risk, there’d be no opportunities to make the kind of incredible returns that the markets can give us. But we must accept that the bigger returns we chase, the bigger the risk that runs alongside it.

I’m not saying that I’ve reached some kind of Nirvana where I don’t swear at my screen when I hit a stop loss, but I’m definitely a happier and more successful trader when I accept that I have absolutely no control over what the markets will throw at me each day – but I can control the way that I react to them.

Share with members where you are on the journey, and any tips you have to help other traders on their way ….

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