Survival is the initial goal for any trader, and it hinges on establishing realistic expectations. In my experience through coaching and mentoring traders, most newcomers expect quick wealth - A notion that, for successful traders, is comical. Achieving consistent profitability in trading demands an immense amount of screen time, strong problem-solving skills, unwavering discipline, zen-like patience, nerves of steel, ruthless decisiveness, and an indomitable will. Quick gains (if attained) are often fleeting—here today, gone tomorrow—resulting from high-risk “lotto tickets” that are often squandered. More often than not, quick, early gains are a net negative for the developing trader.
The true skill for consistently profitable traders lies not in making money but in preserving it. A trader's progress unfolds through various stages, with the first phase dedicated to crafting a robust strategy. This involves studying the market, distinguishing it from the broader process of learning how to trade, which encompasses risk management and self-discipline. One of the “easiest money strategies” for the developing traders to master is the Two Hour Trader framework.
Developing a viable trading strategy on your own requires an extended period of market observation, necessitating focused learning and organized time management. Success hinges on systematically testing assumptions with objective detachment, emphasizing the efficacy of market observations over immediate profit and loss considerations. To do this effectively, you’ll need a sample size of hundreds of trades - Which is why it's usually easier to rely on a prebuilt framework that has real trading edge like the Two Hour Trader.
The challenge is to overcome the common inclination to focus on profits, especially in the beginning. An example illustrates this point: early in my trading journey, I would quickly sell my profitable position, well before my pre-planned target - At the time, this seemed logical. However, I discovered that this approach, while psychologically comforting, wasn't conducive to long-term profitability. This took me a long time to realize, for one simple reason: sometimes the market pays you for doing the wrong thing. Like I frequently say in the Trader’s Thinktank and to the Trading Mentorship Group, the market can and will reward bad trading behavior. This is why all traders need a journal, review process, and playbook.
A trading journal and playbook became indispensable for tracking how various variables affected trade outcomes. Eventually, I realized that, upon observing specific price actions and sharp moves, I should take at least partial profits at the first notable area of resistance, allowing for mean reversion to my original entry before re-entering the market. This shift transformed a single trade idea into multiple high-probability opportunities, leading to a significant increase in my overall profit and loss. This is one of the most important parts of a trader’s journey - The realization that “there is something here and it’s quite good, but I can make this even better.” Generally speaking, this only comes out through a frequent, detailed review.
During the learning process, traders should continually refine and optimize their strategies. The number of trades taken is important (for proper sample size), but equally crucial is the length of time spent trading, as market behavior evolves. The ability to navigate various market phases defines a truly profitable trader. Plenty of “traders” were profitable in the 2020/2021 “up-only” market… When the 2022 bear market came around, most of those traders lost everything they had made because they really did not know how to trade. Once the conditions became more challenging and unfamiliar, they could not sustain their profitable run. Markets are always changing. Sideways markets become trending markets. Quiet markets become volatile ones. So, once you have developed your strategy and sufficient time has passed, your confidence in being able to navigate different market environments should grow.
Transitioning to effective execution is the next stage, closely intertwined with strategy development. The delineation between these two stages is not clear. They will overlap as you develop your edge and work on executing it. While working on developing your edge and executing it, you must hone your discipline and skills concurrently - This should occur naturally if you have a strong review process. Over time, certain behavior patterns will emerge that you’ll notice - And from these patterns, new rules can be created to protect you from yourself.
The final stage of a trader's journey involves reaching the upper echelon, where insights and conviction enable them to capitalize on winning positions, adapt to changing situations, and discern when to bend the rules. This level represents the summit of progression, where you can legitimately lean on intuition and not fear/greed-based reasoning.
In conclusion, success in trading demands a continuous review of one's actions, quick adaptation to mistakes, and a relentless focus on what works. Ultimately, the journey transforms from survival to thriving—a progression marked by experience, problem-solving, and the ability to seize opportunities in any market condition.