No matter how many days, months or years of trading exposure you have, it is essential to be self aware of the three main stages of trading. It is not a straight up line that you can follow to achieve wealth and financial freedom but rather a road map that tells you what to expect from the market and from yourself at different phases of your journey. This post does not aim to invent the wheel, but instead point the obvious and make you mindful of your trading activity; after all, that's our motto: "Preparing Mindful Traders."
Stage 1: The Bleeding
As you set foot into the trading battleground, you will face heavy cuts and bruises until you become aware of the reality of this industry. At this phase, we are just starting to expose ourselves. Financial freedom and making millions are the goals of the many and a steady passive income for some other fellas.
What happens at this phase? The novice and rookie trader faces some of the following but not only:
Heavy losses in a short period of time;
Multiple account blow ups & margin calls;
Constant emotional distress and all of its derivatives;
The urge to blame the system and others;
Capitulation and quitting
A few reasons why the bleeding happens:
Inexperience and lack of knowledge;
Lack of daily and weekly preparation;
Misguidance from other parties;
(you can read more on our previous post --> What to Expect as a Novice Trader).
How long does the bleeding last? Well, being in the red usually takes 18-30 months for the serious trader. There is no research done that can prove this statement but from our own personal experience and the discussions with thousands of traders up to now, we have seen that to have been the norm for someone jumping from Stage 1 to Stage 2.
What can I do to stop the bleeding? Your goal is to have an answer to the 5 reasons we outlined above and give yourself 3 months to test your new self for stage 2. Put them all down on a piece of paper or talk them out with someone that is following your progress. It will take a short amount of time for you to see the difference. Your account will stop being constantly red. It will fluctuate and remain stagnant for some time. At this point, you have achieved Hemostasis.
Stage 2: Hemostasis
The process of stopping the bleeding is an important step towards being mindful of your actions. At this point, you cannot take the losses anymore. You are sick of your self and your mistakes. If you haven't quit at this point as we mentioned above, you will go to the drawing board and answer those 5 main questions and not only:
How can I build a sold foundation of knowledge? You start by watching hours of free videos on the internet, buying courses or reading trading books. There are no shortcuts. At our early stages, we spent 10-14 hours every single day looking at the price action, watching Youtube videos or other professional traders.
You will need a daily or weekly trading routine. A checklist of what to do is much needed here. Resources you will use every time you trade; time of day you will trade. creating a risk system with a daily loss cap; what markets to trade and how to scan. For example, we start by scanning the Economic calendar for potential high impact news then spend 15 minutes analyzing charts during the London/New York open and trade using a pre-determined lot size scheme based on our risk system. We also have a daily loss limit of $2,500 which we must not reach or $6,000 per month. These numbers are based on your account balance and risk appetite.
Fact-check what other people told you about trading. Trading is all about consistency; it is a get-rich-slow scheme; it is all about a bulky paycheck at the end of the month. Trading is not to create extreme wealth. You got that wrong if you are in this business to be a multi-millionaire. Investing creates wealth. Trading is a HIS (High-Income-Skill) From trading, we achieve personal freedom, more time to think during the day, and decent money to invest elsewhere, such as real-estate, retail-business, stocks, crypto, holidays, sabbaticals or funding Illuminati groups and starting global pandemics ;)
Am I right for this job? Even though we believe everyone can be a trader, reality has proven us dead wrong. We have written a few points about this topic in this other post: https://www.impulsivewavetrading.com/post/what-does-a-novice-trader-needs-to-know-about-trading-expectations-vs-reality
What can I expect from trading? Keep your bare-feet on mother Earth but your mind open for all outcomes. The ROI from trading depends on three main elements 1) how good your strategy is in times of market chaos, 2) how much you start with and 3) how disciplined you are with your risk system (daily loss cap and monthly loss cap).
Our goal in this stage is to have established a system that includes 1) trading strategy, 2) risk system, and 3) trading routine. Once you have done this and started implementing the changes then you are ready to slowly feel the rewards.
Stage 3: Recovery
At this stage, you are finally withdrawing from your account. To us, the success in trading is measured from your net positive withdrawals every month or quarter. Recovery usually starts slow and is not felt but someone jumping into stage 3 usually becomes profitable in Q1. If you are not profitable at least 3 months in a row then you are still on stage 2 or even worse back to stage 1.
A few things to keep in mind in this stage that many people forget to take note (including us):
Be watchful of your success and profitable days;
Keep your confidence on a leash;
Keep following your risk system you outlined in Stage 2
Most of us tend to fail harder once we reach a certain level of success, which we never experienced before. Falling of the mountain only because you thought the mission was over. That is why we believe that the stages of trading are a grand cycle that repeats itself. Our goal once we reach stage 3 is to never ever again blow the account and reach stage 1 but bounce between 2 & 3.
And, that's a wrap!
You might want to read up on the following concepts as well:
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Until the next time, "Be a Mindful Trader!"