Trading Evolution Phases

Discussion in 'Psychology' started by alex.samant, Feb 23, 2008.

  1. I am very disappointed with 90% of the educational material on the market right now.

    It took me years to understand this and it's not a pleasant feeling because i realize that the proper knowledge could have been passed to me in a few months and i could have spent the next years perfecting my skills rather then searching for the perfect system or approach for money management or what not.

    But, hey, lucky i sticked with it and figured everything out myself. However, not many do, lose money, their house, their social life, their pride and self-esteem, and God knows what else... It's really a shame.

    I come to realize that I was tricked into thinking that my goal, starting with day 1 of trading, was to make money. This is where the trouble starts. You are so focused on making money that you really don't make money, you lose it. An ancient chinese proverb says that "He who thinks about money all day, goes to bed tired".

    Then, I was tricked into thinking that i need to "Learn How to Make Money in The Markets" (10s of titles like this on the market)... because obviously i didn't know how to make money and i was stupid and needed to learn, from somebody else, right?... Right.

    A lot of advices there. Among which "KISS" and "Money Management is Key" and overrides the method you are using, then "Psychology" came into play, and I ended up buying book after book because i was getting more and more confused. It's like drug abuse really.

    It's really like you're trying to catch not two, but three rabbits at the same time.

    What I came to realize is that the roman "Divide et Impera" is as true in trading as it is in life.

    However, traders with stars in their eyes will discard the following advice and look to "Make Money". Suit yourselves.

    The RIGHT way to approach trading is to split the whole process into 3 phases:

    1. Beat the Market (develop a high-expectancy system that you are comfortable with, that you understand, that fits your life style, and not the other way around. Do not mold yourself after a system or approach).

    2. Start Making Money using the system you found in Phase 1.

    3. Finally focus on Making a Living, after you have proven yourself you are able to make money.

    Recognize in which phase you are.

    If you don't have your system yet, your style, you are still in phase one. Learn about the market, and try beating it. Doesn't matter if you make money or you lose money. Develop confidence, intuition, flair, learn the way your market acts in different circumstances...

    Only when you are confident about your approach and you are constantly beating the market, you can switch to phase 2.

    Phase 2 involves being careful and delving deeper into your money management and trade management skills. How do you cut your losses short and let your profits run, of course based on your system's expectancy, etc.

    When you find the ideal way to approach phase 2, you should be already making money consistently. This doesn't mean you are actually making a living.

    But you are consistent.

    The next step is Phase 3, in which you attempt at making a living, once you are consistently making money. This means you have to cover costs, monthly expenses, any goals you have set for yourself, etc. Make a Living. It's not that easy. This is the most complex phase as it involves personal aspects ranging from family, spare time, exercise, habits, etc....

    Most of traders never got out of Phase 1 because they are preoccupied with things like money management or trade management and psychology when they shouldn't be thinking about that yet.

    Those who make it to Phase 2 must be very careful they have a solid foundation from Phase 1 because if they decide to switch approaches, they are back to square 1.

    Those who finally make it to Phase3 are only now making a living and running a business and need to worry about a whole lot of issues that generally occur in real life.

    Hope this helps someone.
  2. cold


    its really funny to me, how perception is the only thing that matters

    there are some smart people on ET who claim their way is the only way

    I of course claim my own way, and some guy with inside info will think my way is pretty sloppy

    bottom line is this, WHAT YOU SEE, is WHAT YOU'LL GET

  3. The truth and what's RIGHT is what works for each and everyone of us.

    When I say "The RIGHT thing is..." I am entitled to call it the right thing because for me it is the truth.

    I share my truth.
  4. cold


    with all due respect alex you did not share your truth

    you did not share your system, method, whatever

    start your post like this

    MY setup is when or before price hits ......

    I then do this.............

    or I wait for this ........

    :D :D :D :D

    I don't blame you, I don't share squat either
  5. it's nothing complicated, rather very simple.

    however, my method is not the one that i can call TRUTH because one day it might not work anymore.

    BUT, the phases described above are TRUE as they prove effective anytime you want to start over with a new approach.
  6. Great post indeed, Alex.

    I personally would replace the first phase with "Learn why markets move". If you understand the war that's happening between bulls and bears it's unlikely you will get baffled at every move for or against you because you focus on the bigger picture. It all comes down to reading price.
  7. dozu888


    good post Alex.... your description of the developing stages is very representative of many of us go thru.

    the nature of the trading business determines that only the bad information can be spreaded to the mass, while the good information is kept hidden by most who succeed.

    And there are only occassional disclosures from viable sources, that it's usually a long process for a beginner to finally understand how market works... years if not decades. (e.g. for myself, after a decade, I have just started to do well in a certain style, but still working on other alternate styles).

    That's why the failure rate is so high (and I suspect is higher than other businesses), because usually in other biz you can find a mentor-apprentice dynamic, either by learning from somebody, or by working as an employee first. In trading, it's harder to find a willing mentor,because of edge errosion issues.

    Trading is definitely only for the 'keeners', who relentlessly persue.
  8. Thanks for the replies. You are also right. Sometimes too much theory ruins everything.
  9. Basically, when one starts out he/she should have a step-by-step approach:

    -Beat the Market
    -Beat the Spread/Commision package
    -Beat your personal finance issues :)

    This should be the order, and all aspects of trading should fall in one or the other phase.

    It's like when you learn to play pool.

    You first start with stance, bridge, basic aiming, then move on to draw shots, forwards, position plays and only in the end, you go for advanced techniques like english and what not. You don't start out with advanced techniques.

    In trading you don't start with making money. You can't start with that. You don't even start with money management...