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Stage Three: The Cynical Skepticism Stage

You've studied so hard and put so much effort into your trading and this universal failure in the patterns only when you take them causes you to feel betrayed by the market, the books and materials and gurus you tried to learn from.

Everybody claims their ideas lead to profitability, but every time you take a trade, it's a loser, even though the setups all worked perfectly before you played them.

And since one of the most painful experiences is to fail when success looks easy, this embarrassment is transformed into anger: anger at the gurus, anger at the vendors, anger at the writers, the seminars, the courses, the brokers, the market makers, the specialists, the "manipulators".

What's the point in trying to analyze and improve your trading when so many dark forces are out to get you?

This excuse-driven blame game is a dead-end viewpoint, explaining many of the things you find on message boards. Those who can't pull themselves out of it will quit.

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Mr. Anderson 1y ago

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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