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Step To Be Trader

The document outlines 38 steps to becoming a successful trader. It discusses how traders typically accumulate information at first through research but lose money in early trading attempts. It notes that most give up before realizing trading requires work to develop a methodology and rules-based system. Later steps involve gaining experience, taking responsibility for results, mastering discipline, and consistently profiting from trading. The document stresses that developing trading skills is iterative and traders may revisit earlier steps as their approach evolves.

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Dedi
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76 views

Step To Be Trader

The document outlines 38 steps to becoming a successful trader. It discusses how traders typically accumulate information at first through research but lose money in early trading attempts. It notes that most give up before realizing trading requires work to develop a methodology and rules-based system. Later steps involve gaining experience, taking responsibility for results, mastering discipline, and consistently profiting from trading. The document stresses that developing trading skills is iterative and traders may revisit earlier steps as their approach evolves.

Uploaded by

Dedi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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38 Steps to Becoming a Successful

Trader
1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realise we may need more knowledge or
information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts
setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and
more knowledge than we anticipated.

MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS


INVOLVED.

15. We get serious and start concentrating on learning a 'real' methodology.


16. We trade our methodology with some success, but realise that something is
missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all
we still hesitate when it comes time to execute.
20. We add, subtract and modify rules as we see a need to be more proficient with
our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our
success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our
rules.
24. As we trade we still have a tendency to violate our rules and our results are still
erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our
rules.
29. We now see the importance of following our rules as we see the results of our
trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in
following the rules because of some kind of fear) and we begin to work on
knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but
successful) and our trading account continues to grow as we increase our contract
size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always
dreamed of.

Most traders will identify with this list and should be able to place themselves within
these steps. Keep in mind that very few people progress through these steps in an
orderly fashion. Developing your trading skills is an iterative process.

For example, you may reach Step 13., find that although you were making money, your
basic premise for trading was flawed (you might have been benefiting from the bull
market, rather than your own trading prowess and then have been rudely awakened
when the market entered a bear phase) and you may drop back to Step 4. and start
'climbing' the steps again.

Having the proper mindset, attitude and psychological makeup becomes increasingly
important as you progress through the steps. The focus of the earlier steps is on
external issues, i.e. developing proficiency in the mechanics of trading while the focus of
the latter steps (particularly from Step 30, on) is on internal issues, i.e. improving
ourselves mentally and psychologically, maturing as traders.

WD Gann's 28 Trading Rules


 Never risk more than 10% of your trading capital in a single trade.
 Always use stop-loss orders.
 Never overtrade.
 Never let a profit run into a loss.
 Don 't enter a trade if you are unsure of the trend. Never buck the trend.
 When in doubt, get out, and don't get in when in doubt.
 Only trade active markets.
 Distribute your risk equally among different markets.
 Never limit your orders. Trade at the market.
 Don't close trades without a good reason.
 Extra monies from successful trades should be placed in a separate account.
 Never trade to scalp a profit.
 Never average a loss.
 Never get out of the market because you have lost patience or get in because you
are anxious from waiting.
 Avoid taking small profits and large losses.
 Never cancel a stop loss after you have placed the trade.
 Avoid getting in and out of the market too often.
 Be willing to make money from both sides of the market.
 Never buy or sell just because the price is low or high.
 Pyramiding should be accomplished once it has crossed resistance levels and
broken zones of distribution.
 Pyramid issues that have a strong trend.
 Never hedge a losing position.
 Never change your position without a good reason.
 Avoid trading after long periods of success or failure.
 Don't try to guess tops or bottoms.
 Don't follow a blind man's advice.
 Reduce trading after the first loss; never increase.
 Avoid getting in wrong and out wrong; or getting in right and out wrong. This is
making a double mistake.

How To Calculate Probabiltiy


Lets say you've developed a trading system. Now you need to evaluate it to
make sure the results are better than chance. You need to calculate the
probablilty.

A - total number highs and lows that occured during a the


entire time period
w - window width (2 days, 2 weeks, 2 months, 2 years etc.)
t - total time window width you're analyzing in days
B - number of Highs and Lows (or indicator cross'if thats
what you watch for) observed during the time being
analyzed
K - Number of times the signal coincided with a price high
or low (i.e. the number of 'hits' )

note* (K<=B)
note* the asterick symbol below (*) implies multiplication

Then

P = Probaility = A*w / t
N = multiplier = B! / (K! * (B-K)!) where:

K! is K factorial; B! is B factorial etc.

lets say K = 3 then K! = 3 * 2 * 1 = 6

p = N*(PK)*((1-P)(B-K)) = total probability


(probability that what is being observed is due to chance)
True Trading vs. Forecasting

Trading is all of these:

1. Selection (choosing your instrument)


2. Timing (entry and exit)
3. Money Management (position sizing, stop loss
protection etc.)
4. Psychology (controlling one's emotions)

Trading has made you money. Trading is not


forecasting.

Forecasting is:

Cycle analysis (seasonals, fixed, expansion and contraction), gann wheel, empirical
models, Non-linear models, Fibonacii time/price projections etc. to arrive at likely CIT
times and prices. Forecasting is a skill which when used properly impoves item number
two on our trading list... timing. It also can help with item 4... psychology, by improving
our confidence (provided that expectation kept in stochastic perspective). Last but not
least, forecasting is fun.

Timing (and in turn forecasting) is the least important aspect of trading. Katz and
McCormick (in their book: Encyclopedia of Trading Strategies) proved that (in theory)
traders can make money even with a random entry is used. Why used a 200 dma when
a flip of a coin will do?

Any respectable Technical Analyst will advise you against trading the forecast.

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