In today’s episode, you’ll discover how long it takes a newbie trader to evolve into a profitable trader.
So listen to it right now…
Hey, hey, what’s up my friend?
In today’s episode, I want to talk about how long it takes to become a profitable trader.
Before I give you the answer, I want to walk you through the different stages a trader would go through…
Stage 1: The hyper newbie
At this stage, you don’t know what you don’t know. So you’ll study and devour everything you come across, be it trading books, blogs, courses, forums, whatsoever. You’ll just devour everything that comes your way and learn everything from A to Z: chart patterns, indicators and whatsoever.
I call this the hyper newbie stage because, at this point, you’re pumped up and thinking, “Oh, man, I’m gonna be the best trader in the world. I’m gonna be the next champion trader. I’m gonna be the next market wizard.”
Those were the thoughts I had when I first started. I wanted to be the next best trader and I’ll do whatever it takes. But at that stage, what happens is that you’ll end up blowing up a few trading accounts.
That’s when you realized that the strategies and techniques are not everything. Because risk management also plays a huge part. And that’s where you progress on to stage 2.
Stage 2: The risk guru
At this stage, you’re being careful with your trades and you’ll risk 1% or 2% on each trade, always having a stop loss, managing your position size knowing that you shouldn’t take too much risk on each trade.
You become the risk guru, you know how to manage your risk. You risk a fraction of your trading account on each trade, but you’re still not making money. You’re still losing money, even though you have eradicated most of the large losses, but the losses still come in.
This is when you encounter the death by a thousand cuts. You don’t lose a lot but you lose small consistently. And when you realize this, that’s where you’ll move on to the third stage.
Stage 3: The lone ranger
At this point, you know that risk management is important. But at the same time, risk management is not enough because you also must have a trading strategy that works in the long run, otherwise known as having an edge in the markets.
This is when you start to declutter. In the first stage, you start learning everything from A to Z, but at this stage, you declutter everything. You start throwing out tools that you don’t use, throwing out the indicators, the trendlines or whatsoever.
You only have with you a few core trading concepts. Maybe you could be going down the price action trading route, maybe you got going down the systems trading route whatsoever.
You would abandon 80%, 90% of the stuff that you’ve learned and focus only on a few things. That’s when you really dive deep into your trading methodology. This is where you start getting serious developing a trading plan or a trading system, and you start backtesting to make sure that trading system that you’ve developed makes money in the long run.
But this stage would take quite a while. If you do make it, this is where you’ll move into the fourth stage.
Stage 4: The business owner
I call this stage the business owner because this is where you start scaling up. You start moving your trading account maybe from five figures to six figures. Then from six figures to seven figures.
This is when you start diversifying your source of income. So you start trading multiple trading systems, multiple trading strategies because that one trading strategy doesn’t work all the time.
This is when you incorporate multiple trading strategies to diversify your returns to smoothen it out over time. You’re now thinking like a business owner, and you start scaling up.
You’re also managing your trading psychology at this point because trading a five, six or seven figures account will each require vastly different trading psychology.
Because if you think about this, a 1% risk on a $10,000 trading account, it’s $100 per trade. But a 1% risk on a million-dollar trading account would be $10,000 per trade. You can see that the trading psychology required will be vastly different.
The percentage risk is the same, but the number of zeros in terms of absolute gains and losses increases. That’s when you need to level up your trading psychology to be mentally stronger and to be able to trade a larger account.
So that’s where the fourth and final stage lies, where you start thinking like a business owner.
Now you might be wondering…
How long does it take for you to be a consistently profitable trader?
Well, that depends on which stage you’re in now, whether you’re at stage 1, or maybe you’re at stage 2, I’ve no idea.
There’s a market wizard called Marty Schwartz, who spent 9 years studying fundamentals and didn’t make money in the markets. Only in the 10th year, he became a consistently profitable trader by relying on technical analysis. It took him close to 10 years to become a profitable trader.
Back then when I was a prop trader there’s a rule of thumb where you’re given about six months to a year to prove that you can make money in the markets. If by that time you don’t make it, they’ll just simply cut you out.
I can’t say how long it’s gonna take you to become a profitable trader. It really depends on how much time you spend, becoming a better trader, which stage you’re at now and how much you focus on the process.
I hope you’ve learnt to understand which stage you’re at now and what you can do to progress on to the next stage. You have to know where you are now and what are some of the things that you can do now to get you closer to the next stage.
For example, let’s say you’re at stage 2 now where you realize that you know what’s risk management, but you don’t have an edge in the markets. What can you do now to get an edge in the markets?
You could be studying trading systems that have already been proven to work, so you’ll make tweaks to it and you can finally adopt a system that works.
Or maybe incorporate a trading plan, then backtesting and forward testing it to find out whether it works or not.
With that said, I’ve come towards the end of today’s episode and I’ll talk to you soon.