The 10 Step Process for every successful Trader
I've been asked a ridiculous number of times now, what is the best way to minimize losses and what is the best way to learn how to make money in the Stock Market... and I seem to keep coming across the same scenarios, so rather than ramble on... I'm going just tell you what the average trading journey looks like.
It usually starts something like this..... I got interested in the Stock Market and wanted to make some quick money. I started off trading with little or no background in the Markets - and for some reason - I'm losing money - but I don't know why. Can you give me some help & advice because I'm close to giving up?
Now.... before I get into the "standard" response - for which the answer is probably staring at you in the face... I would like to give some context as to what an experienced skilled Trader has gone through to get to the level they've arrived at.
1. They started off with little or no experience and started jumping into trades - they lost money
This isn't too difficult to understand as by having next to no understanding of the stock market, how it works, the dynamics or Technical Analysis is really opening yourself up to the high probability of failure.. most traders start off this way - some get lucky, most don't. It's highly likely that if you start trading the markets with no real understanding - you'll simply be starting the path of every singe successful trader.
2. They then started to pick up little bits of knowledge here and there - had a couple of big wins and got confident - they then lost money
Early in the Trading journey, many traders get hooked, and think trading is easier than it actually is because of a couple of lucky wins.. it seems so easy when the wins come in.. the confidence follows (which is misplaced) and many traders will then start to pick up bits and pieces of knowledge here and there through a combination of YouTube / Website Articles and oftentimes a friend who has traded for a while (they're normally just as ill-informed) and you put too much trust in the articles and the confidence you have in your friend is also likely misplaced.
3. They start to jump into trades with reckless abandon in the hope of catching the big win that will catapult them - they lost money
This is a crucial stage for most traders... the euphoria from Stage 2 (the big wins) has caught hold, and Stage 3 is really the stage where you try to just catch the big fish that will push you on to glory. This is a dangerous stage as it normally results in a blown account, and it's a stage that can result in a Trader just giving up and saying to themselves "I can't do this anymore". It is also a stage where the Trader will come to the realization that Trading is more difficult than they thought, but they will still feel compelled to give it 1 last try.
4. They start taking advice from "Dave down the pub" who has a hot tip for you - they lost money
This stage is probably the most frustrating for any Trader... you have attempted to make money in the markets using independent thinking, and it hasn't quite worked out. As mentioned in Stage 2... you start to rely on others to make money... this could be "Dave down the pub"... or it could be a Whats App signal service (which has a 2 minute actionable trade idea)... you continue to lose money because you have no clue about why you're placing a trade and you have no clue about exit strategy. After stage 4... you will either give up completely... or you'll be motivated to learn... This is the most crucial stage in any trading journey.
5. They stop trading completely to focus on education - they DON'T lose money
The rooster has come home to roost... you understand it wasn't working through Stages 1-4, so you stop trading altogether - not because you've given up, but because you see the potential in Trading, and you want to go back in again with a better skill set - this is the stage where you are motivated to learn and you will TRULY start. At this stage you may have blown a couple of accounts - but you say NOT again.. and you start consuming content like your life depends on it.
6. They start to educate themselves and focus on what type of trader they want to be - they understand there are many styles - they're still not losing money
Swing Trader? Day Trader? FX Trader? Trend Trader? Long Term Investor? Commodities Trader? Equities Trader? Crypto Trader? What do you want to be? What's the path of least resistance? These are normally the questions that are asked at this stage. You have consumed enough content at Stage 5 and you likely now understand there are various options available to you - you spend a lot of time deliberating your path... and you probably choose to be a Day Trader.
7. They start to read books and enhance knowledge on the habits of successful traders - they still aren't losing money
Find out what good traders do and do that... it's simple right? There is a multitude of information available to us now... trading and the Financial Markets does NOT mean you need to have a Doctorate from Harvard (which the likes of CNBC / Bloomberg etc will have you believe) - you can quite simple buy a few books on your chosen style, written by experienced Traders - you learn some of the skills required to trade successfully.
8. They start to understand Risk, and the importance of a Trading Plan - confidence is building - they still aren't losing money
You're on the home straight, you know what you want to do... you know the "general idea" of how to be a successful trader, but you're struggling a little with fine tuning it all and putting the Markets together and incorporating Technical Analysis into your strategy. You have hundreds of Technical Analysis tools available - and putting them together in the correct fashion, along with the major indices and the Sectors etc in order to build a "picture" is a bit of a struggle. You know you're on the verge of something big.
9. They seek out an experienced Trader for the style they want to adopt - and undertake a mentor-ship - they invest in their education - the best learning there is
There are many ways to establish a mentor-ship... I personally advocate seeking out individuals in your local area (Meet Up groups are great) as this will often give you direct access to individuals who are more experienced than you are. If you live in a small town and these groups aren't readily available.. the Internet can be a harsh place to learn - with many Mentors charging 10s of thousands of dollars to learn how to trade. Due Diligence is required and finding someone that you trust and have built a relationship with is most definitely the best course of action.
10. After completing a mentor-ship - they enter the markets - completely confident - and start making money
The best feeling... entering the markets with confidence... if you make it to stage 10... Congratulations... you've given yourself the best possible chance of success in the markets... and hopefully you won't end up on the wrong side of the 95% failure rate.
You would be amazed at the number of people that I speak to who will have gone through the steps above and just give up on investing / trading after Step 4 - and if they only realized that by going through the 10 Steps - you will have completed the process of every successful trader, therefore - when giving my response to the original query above - I will usually ask what education they have given themselves - because it is abundantly clear that a lack of education on the subject matter is all that is lacking - and in my experience - it is not a difficult thing to remedy.
The solution - Find out what Successful Traders do - and do that! - It really is that simple.
My bias is clearly towards Trading Trends, and the reason for this is that the Trends are ALWAYS available.... no matter the Market Type (Bull or Bear Market)... they apply to Stocks.... Commodities.... Foreign Exchange.... the market is always Trending somewhere and to enter the market and trade trends - it's not even time consuming. I bloody love it and I love the lifestyle.
There are no chat rooms to watch all day for the latest signal alerts, there's no watching stocks all day wondering of you should enter or exit a trade because price has hit a key number on a 5min chart.
Wherever you are on that chart.... understand that there are blue skies ahead - you just need to go through the education.
If you’re interested in education and you struggle with your trading results… we’d love to hear from you.
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