“The hero’s journey” is a powerful story structure that has been used by master storytellers throughout history. I’ve noticed that traders go through a similar journey, starting with “first learning what trading is” is to “becoming a profitable and constantly-adapting trader”. Here are the main events in what I will call The Trader’s Journey. How far along this journey the trader goes depends on the trader.
Phase 1: EXPOSED to trading and its potential financial rewards
At some point in his life, a person is exposed to trading.
He says: “Interesting! So some people called “traders” look at some screens, place trades, and make millions of dollars in a matter of minutes?! That sounds way better than working a regular job. And I can open a brokerage account and do this, too? Sign me up! How do I get started?”
And the journey begins.
Phase 2: Learn a trade entry strategy that seems to make sense
Usually, a beginning trader will not need to look to far to find educators. Usually, their broker will start inundating the trader’s email inbox with free educational videos from their partners. These parterns generally teach the trader how to trade in ways that align with the broker’s goals (i.e. quiz: how does a brokerage firm make it’s money?)
Phase 3: Engages in behavior that supports the belief that this entry strategy is the answer
Generally, the trader wants to be believe he/she has found something that no one else knows about. Also, the trader does not really understand how to do research, how much research actually needs to be done, etc. so he really wants to be done with research and on to making money. The trader may find message boards, social media, etc. where he finds others who say the same thing. They are usually not making consistent profits trading, most are even losing, but still they repeat what they have learned, as if the act of repeating it will make it come true. A human weakness we all face.
Phase 4: Tries to trade that entry strategy with real money
With the sure thing entry strategy all ready to go, the trader puts real money on the line and starts to trade!
Phase 5: Loses money
Most likely, the trader only learned about entries and has no idea how to manage trades or manage risk. Even worse, the beginning trader will simply, and regrettably, trade too large. This means he will likely lose a major portion of his account.
If he loses too much and if too painful emotionally, the trader will give up, thus ending his journey.
Phase 6: Looks for more evidence that the entry strategy works
The trader feels a lot of feelings now, most notably:
- Embarrassment: from actually losing money
- Frustration: the entry he learned did not work
- Desire for revenge: “the market” took something from the trader, and he is determined to GET IT BACK!
- Need to be right: the trader is so sure he is onto this super-secret entry that all the other suckers out there don’t know about, and he doesn’t make mistakes. So he will ultimately be proven right, if only he seeks more evidence that the entry works, and maybe if he just bets a little bigger…
Phase 7: Loses more money
The trader of course loses more money (he is not yet concentrating on the right things). But he thinks it’s all about entry systems. Weren’t there emails from a few other educators in his e-mail inbox?
Phase 8: Goes looking for new entry strategies that will help avoid the pain of losses (being wrong and losing money)
The trader finds new sources of entries that also support his beliefs about how the market works (i.e. some secret indicators will allow the trader to ‘figure out’ the market). The trader repeat the previous steps, but for a different entry strategy, possibly with a different market, product, time frame, etc. (But he’s still looking at the wrong things)
Phase 9: With many battle bruises and scars, the trader takes a good look in the mirror and admits something is wrong.
Capitulation. The trader has lost too much money and has cut himself off, or has been cut off by his broker.
Phase 10: Starts looking trading being as something much more than finding a good entry
The trader does some more research. The trader learns about some new concepts, possibly even concepts that improve his level of personal awareness (cue the new age music, but this is for real) and applies some energy to learning the real math of trading. So, the trader starts focusing on:
- Risk management
- Finding HIGH EXPECTED VALUE trading strategies that include how to manage entries, risk and exits
- The “meta” of trading: awareness, perception
- The math of trading: expected value, the power of compounding, the devastating effect of large losses
- Trade management
- Portfolio management
Phase 11: Profitability!
The trader, at long last, is consistently profitable. At this point, the trader has undoubtedly learned to manage risk and to gain exposure to opportunity and is P/L shows it.
Phase 12: Embraces a commitment to constant improvement: adapt or perish!
Markets, instruments, margin requirements, rules and products always change. The trader must adapt to these new change or the trader will stop being profitable. If he gets caught in an emotional trap again, as if he was a beginning trader who does not know better, then he will be back in the pre-profitability phases and will lose money until he quits, is forced to quit, or learns to adapt.
And for some that reach this point, there’s more….
I believe that if the trader pays close attention along the journey, if he has navigated the technical, strategic, tactical and emotional challenges inherent in placing capital at risk to achieve profit, if he can adapt over time as needed (and maybe even enjoy the process) then he may have also picked up something else. Maybe he has developed a new level of awareness (i.e. of his own emotions) that might help in many other areas of life.
If you trade, then maybe you recognize some of these steps all too well. If you’re just starting, then perhaps it can help you recognize some of these pitfalls on your own journey.
To good trading,