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The 4 Stages To Profitable Trading – Where Are You Now 

Last Updated: December 3, 2020

By Rayner Teo

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In today’s episode, you’ll discover the 4 stages to profitable trading.

So tune in right now…

Resources

How Long Does It Take to Become a Consistently Profitable Trader?

When Should You Quit Trading?

Transcript

Hey, hey, what’s up, my friend? In today’s episode, I want to discuss the 4 stages to profitable trading.

You can decide for yourself which stage of your trading career you are in now and how you can progress to the next stage.

Stage 1: The hyper newbie

In this stage, you are all hyped up about trading, you have high hopes about trading and the possibilities that it could bring.

In stage one, the hyper newbie stage, you are trying to learn everything you can about trading – the strategies, the chart patterns, the indicators, RSI, MACD, Fibonacci whatsoever. You learn as much as you can.

Then you might even have some beginner’s luck where you make some profits in the financial markets, and then you think to yourself, “Oh man, trading isn’t as difficult as what Rayner says, maybe I can quit my full-time job and trade full-time instead.”

Then what happens next is that eventually, your losses will catch up with you. You’ll first suffer a few losses, then a series of losses, and then you lose to a point where you wipe out your entire trading account. Then you’ll fund a new trading account and get wiped out again.

At this point, you kind of realize that trading is not just about strategies and techniques because you got to manage your risk as well. That’s when you move on to stage two…

Stage 2: The risk manager

This is when you’re learning risk management techniques, position sizing, stop losses, etc. As a risk manager, you’re getting your risk under control, you’re no longer wiping out your trading account. Whenever you put on a trade, you know how much you can potentially lose.

You’re good at managing your risk at this stage you and you’re able to contain your losses, but you’re still not seeing your account in the positive territory, your account is still bleeding.

It is bleeding slower, you stopped wiping out your trading account, but it’s still bleeding in the long run. And this is where you, you kind of realize, that you don’t only need risk management. By then, you’ll realise that you must have a statistical edge in the markets.

Stage 3: The lone ranger

As a lone ranger, this is where you have already accumulated a vast amount of trading knowledge. Now, the key thing here is not to acquire more knowledge, but rather, to discard knowledge that’s irrelevant to you.

You’ll probably discard 89, 90% of the stuff that you’ve learned over the years. As a lone ranger, it’s up to you. Now, to make it as a trader, no one else can help you, but yourself.

As a lone ranger, you move on to do further research by backtesting, to see whether your trading strategy works or not. You can also do forward testing to see how your strategy works in the live markets. And this is the path of a lone ranger.

Once you are in the process of doing your backtesting, and forward testing, you are pretty serious about this as a business and you’re moving on to the fourth stage.

Stage 4: The business owner

As a business owner, you probably would have already found your edge in the market and you have a trading strategy that works in the long run.

But one of the key things you’d realize is holding you back is that to scale up as a business owner, you need money to make money in trading.

As a business owner, it’s your job to raise the size of your trading account. It could be through getting funds externally or transferring some of your savings into your trading account, I don’t know.

But as a business owner, you’re looking to scale up your trading business to trade a larger account size. This way, you can make more money.

And also as a business owner, you would realize that business isn’t always rosy. For example, if you have a restaurant business, you won’t be making huge profits every day or every month of the year.

Certain seasons might be more profitable for you, like Christmas, New Year and stuff like that, while certain seasons are drier.

Similarly, your trading strategy isn’t going to make money all the time. As a business owner, you must also start to think about adopting multiple trading strategies, which are uncorrelated to one another.

For example, if your trend following strategy is not doing well, but your mean-reverting trading strategy can do well during the same period, then those are uncorrelated strategies.

As a business owner, as you scale up the size of your trading account, you want to adopt multiple trading strategies and hopefully in the grand scheme of things your business can sustain and have a smooth upward sloping equity curve in the long run.

That’s pretty much the 4 stages to profitable trading.

Here’s a quick recap…

Recap

  1. The hyper newbie – you’re pumped up and you have high hopes about trading
  2. The risk manager – you see the importance of managing your risk
  3. The lone ranger – you’re trying to find and discover your edge
  4. The business owner – you are looking to scale up your trading business by adopting multiple trading strategies or increasing the size of your trading account

With that said, I wish you good luck and good trading. I will talk to you soon.

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