Thursday, February 23, 2012

Trader Development Cycle: Self-evaluation

Thanks again for the wonderful support over the past week.  I'm very fortunate to have met so many great people since I've started on this journey to become a trader -- from Trader X's blog, my blog here, and especially the Diamond Setups community.  It's people that make such a big difference in life, and I an really thankful for all the friends that I have met on this journey.

Where am I on the development cycle of a trader?
Now it's time to get back on track and start moving forward again, on my relentless quest to becoming a consistently profitable trader.  But before I start trading again too quickly, I thought it would be good to first take a breather and evaluate my development to date.  It's important that I understand where I am, so that I can better determine the path I need to take in order to reach my goals as effectively as possible.

Sources for evaluating yourself as a trader
Thankfully, there have been a few different sources that help to describe the various stages or phases that one needs to overcome in order to become a successful trader.  Recently, there have been three sources that have struck a cord with me:
  1. (FT71) is someone who has been around for years, but I've only become aware and acquainted with him only in recent months -- oh the catching up I have to do!  He recently hosted a webinar for his brokerage clients-only (, and one of the sections discussed was "The 5 Stages of Trader Development."  Andrew Menaker also had an article discussing a similar development framework.

    On a separate note, if you're a developing trader, you should seriously consider opening up a VK Trader account with VanKar.  The level of commitment, tools, education, and services they have and/or are planning on to help the serious retail trader (especially ES traders) is absolutely amazing.

  2. "High Performance Trading" by Steve Ward describes in the first chapter of his book the three stages one must transform through in order to become a trader, and also mentions a development curve for traders he calls the J-Curve.  You can read the first chapter on Amazon here. 

    It's a great book that takes much of the psychological theory and concepts discussed by the Douglas, Steenbarger, Kiev, etc., and creates practical exercises for specific areas that are actionable.

  3. 38 Steps to Becoming a Successful Trader from Tim Racette of breaks down the 38 various steps one must conquer in order to achieve success as a trader.  He mentioned that the steps were from a book by John Piper's called "The Way to Trade".

    Tim has a great website, focused on the ES trader, but applicable to nearly all markets and traders.  One good starting point is to read his Best of EminiMind post, which groups together various articles by areas of interest.
What did I discover?
I have included additional details and my evaluation from each of the various development frameworks in the Appendix section below.  But in summary, everything seems to point towards the same conclusion:
  • I still need to master my methodology and trading rules
    • From what I have learned from the Trader-X, SMB, Diamond Setups, and others, I know more than enough setups that have an edge.  But I need to stick with a methodology and master it.  I'm feeling good that I'm making progress narrowing down a method that works well for me.
  • However, more importantly, it's my lack of discipline that has been the biggest challenge
    • Being consistent with taking trades that are a part of my trading plan is critical, at least until I reach the point in the future where I can trade using "Unconscious Competence." 
  • I have experienced some characteristics of a successful trader, but not consistently
    • It's good to see that I have achieved periods where I have demonstrated certain characteristics of a consistently profitable trader.  However, I need to be able to stay in that zone consistently.
  • This self-evaluation has brought me hope
    • Although there are times when it doesn't seem like I'm very far away on the trader development cycle, I realize that the final steps will require considerable amounts of time and effort to accomplish.  And I'll probably never get "there", and will have to work hard as long as I trade.
As I settle into a consistently net-breakeven trader, I realize that one of my biggest challenges to becoming a consistently profitable trader will be time, and so I need to do my best to protect my capital (i.e. solid risk management).  Within the framework of establishing a trading process maintained with a high degree of discipline, I will also maintain patience knowing that there are no short cuts to the considerable efforts ahead.

OK, time to get back to work!

Included below are the excerpts from the various trader development frameworks discussed above, as well as where I believe I am for each respective framework, which have been highlighted in yellow

FuturesTrader71 (FT71): The 5 Stages of Trader Development

Stage 1: Unconscious Incompetence
  • You believe that you can make a quick $ by trading and that it is a piece of cake.  Heck, it is just a video game. You fund an account
  • You think you know but you really don't. Eventually, big loses are taken and reality sets in.  Hello monkey!
Stage 2: Conscious Incompetence
  • You have finally met your monkey, took some big losses and you realize that you really don't know what you think you know
  • You are led to believe that there is a holy grail out there, so you use a lot of indicators, buy lots of books and courses
Stage 3: Conscious Awakening
  • You realize that it is not so much the system that makes or loses
  • You come to terms with the culprit as your own psychology, attachments to money or being right; your aversion to accepting losses that prevents you from making it
  • You begin to be aware of and are frustrated by your lack of discipline
Stage 4: Conscious Awakening
  • You are a seasoned trader and you know that this is all about accepting the unknown
  • You learn that losses are not all that bad, but there is a conscious effort to manage emotions still
  • You stop seeking the approval or consent of others for your own trades
Stage 5: Unconscious Competence
  • You feel no attachment to trades, wins, losses or the outcome whatsoever
  • You are disciplined and your reactions and read on the market are occurring beyond thought
  • You are militant about your homework, environment, tools, beliefs and goals

The J-Curve from the book "High Performance Trading" by Steve Ward
  • Learn not to lose
  • Make money
  • Break even
  • Profitability
38 Steps to Becoming a Successful Trader from is a great website for not only the ES trader, but for trading in general.  See his "Best of" post for great articles on various aspects of trading.

Starting at #29:
29. We now see the importance of following our rules as we see the results of our trades when we don’t follow them.
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 trading rules.
33. We begin to consistently make money. We begin to consistently make money.
34. We get a little overconfident 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 then we ever dreamed to be possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.


Tim Racette said...

Thanks for the shout out Grove.

Grove Under said...

Hi Tim,

Thanks for stopping by. And again, keep up the great work on your website!