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Stage Four: The Squiggle Trader Stage

You'll move into the "squiggle trader" phase if you don't quit.

Since you failed with patterns and so on, you figure there's some "secret weapon," a "holy grail" known only to a select few, something that will help you filter out all those bad trades.

Once you find this magical key, your profits will explode, and you'll achieve every dream you've ever had. You begin an obsessive study of every method and indicator that is new to you.

You buy every book, attend every course, sign up for every newsletter and advisory service, and register for every trading website and every chat room. You buy more elaborate software. You buy off-the-shelf systems. You spend whatever it takes to buy success.

Unfortunately, you stack so much onto your charts that you become paralyzed. With so many inputs, you can't decide, particularly since they rarely agree.

So you focus on those which agree with the direction of the trade you've taken (or, if you're the fearful sort, you look only for those which will prove to you how much of a loser you think you are).

This is all characteristic of scared money. Without a genuine acceptance of loss and the risks involved in trading, you flit around like a butterfly in search of anything or anybody who will tell you that you know what you're doing.

This serves two purposes:

(1) it transfers to others the responsibility for the trade and

(2) it shakes you out of trades as your indicators conflict.

The MACD says buy, and the stochastic says sell. The ADX says the market is trending, and the OBV says it's overbought. By the end of the day, your brain is jelly.

This process can be useful if the trader learns what is popular, i.e., what other traders are doing, and, if he lasts, how to trade traps and panic/euphoria.

And even though he may decide that much of it is crap, he will, if he doesn't slip back into the Cynical Skepticism Stage, have a more profound appreciation - achieved through personal experience - of what is sensible and logical and what is nonsense.

He might also learn more about the kind of trader he is, what "style" suits him best, and learn to distinguish between desirable and practical.

But the vast majority of traders never leave this stage. They spend their "careers" searching for the answer. Even though they may eventually achieve piddling profits (if they don't, they will no longer be trading), they never become truly successful, which has insidious consequences.

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Mr. Anderson 1y ago

Stage Five: The Inwardly-Bound Stage

The trader who is able to pry himself out of Stage Four uses his experiences there productively.

The trader learns, as stated earlier, what styles, techniques, and tactics are popular. But instead of focusing entirely on what's "out there," he begins to ask himself some questions:

What exactly does he want? What is he trying to accomplish? What sort of trading makes the most sense to him? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? Which is most comfortable?

What instrument—crypto, futures, stocks, ETFs, bonds, options—provides the range and volatility he requires but is not outside his risk tolerance?

Did he learn anything about indicators in Stage Four that he might be able to use?

So he "auditions" all of this to determine what suits him, taking all that he has learned and experimenting with it. He begins to incorporate the "scientific method" into his efforts to develop a trading plan, including risk management and trade management.

He learns the value of curiosity, detached interest, persistence, and perseverance, of taking bits and pieces from here and there to fashion a trading plan and strategy that are uniquely his. He has complete confidence in this plan because he has tested it thoroughly and knows from his own experience that it is consistently profitable.

He fully accepts responsibility for his trades, including the losses, which means that he understands that losses are inevitable. Rather than be thrown by them, he accepts them for what they are, a part of the natural course of business. He examines them to determine whether or not some error was made, particularly one that can be corrected, though true trading errors are rare.

But if not, he simply shrugs off the loss and goes on about his business. He understands, after all, that he is in control of his risk in the market. He doesn't rant about his broker, the specialist, the market maker, or that vast conspiracy of everyone trying to cheat him out of his money.

He doesn't attempt revenge against the market. He doesn't fret. He doesn't fume. He doesn't succumb to hope, fear, greed. As stated earlier, the trader learns

Impulsive, emotional trades are gone.

Instead, he just trades.

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Mr. Anderson 1y ago

Stage 6: Mastery

At this level, the trader achieves an almost Zen-like trading state. Planning, analysis, and research are the focus of his time and effort.

When the trading day opens, he's ready for it. He's calm, relaxed, and centered, and trading becomes effortless.

He is thoroughly familiar with his plan. He knows exactly what he will do in any given situation, even if the doing means exiting immediately upon a completely unexpected development.

He understands the inevitability of loss and accepts it as a natural part of the business of trading.

No one can hurt him because he's protected by his rules and his discipline.

He is sensitive to and in tune with the ebb and flow of market behavior, and the natural actions and reactions to it that his research has taught him will optimize his edge.

He is "available".

He doesn't have to know what the market will do next because he knows how to react to anything the market does and is confident in his ability to react correctly.

He understands and practices "active inaction," knowing exactly what he wants and what he's looking for and patiently waiting for the right opportunity. If and when that opportunity presents itself, he acts decisively and without hesitation and then waits patiently for the next opportunity.

He does not convince himself that he is right. He watches price movement and draws his conclusions. When market behavior changes, so do his tactics.

He acknowledges that market movement is the ultimate truth. He doesn't try to outsmart or outguess it.

In a sense, he is outside himself, acting as his own coach, asking himself questions and explaining to himself without rationalization what he's waiting for or what he's doing, reminding himself of this or that, keeping himself centered and focused, and taking distractions in stride.

He doesn't get overexcited about winning trades; he doesn't get depressed about losing trades.

He accepts that price does what it does and the market is what it is.

His performance has nothing to do with his self-worth.

During this stage, the "intuitive" sense begins to manifest itself. As infrequent as it may be, he learns to experiment with it and to build trust in it.

At the end of the day, he reviews his work, makes whatever adjustments are necessary, if any, and begins preparing for the following day, satisfied with himself for having traded well.

The knowledge proved through research that a particular price pattern or market behavior offers an acceptable level of predictability and risk-to-reward to provide a consistently profitable outcome over time.

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