I would like to share with you another aspect of trading- my fascination with the different levels of trading experience. Starting in one of the latest discussions in the comments section, I shared with one of you that experience in trading comes in stages. I call those the 4 Levels of Trading. So, let’s have a deeper look into those stages and what they really are
Level 1- The Beginner
This stage starts when you realise there is a way to make money while staying at home. At this stage you are probably neither aware of the dangers of trading nor of where to start looking to understand trading. In this stage you are full of enthusiasm and want to conquer the world. In this stage, you are starting to realise that more money can be made through leverage and you underestimate all of the dangers that trading on margin carries. This is the stage that probably 20-30% of “traders” are quitting.
Level 2- The Student
The second level of trading is the learning period. In this period, you are trying to lay your hands on literally everything that is trading related. This is anything from trading articles, free 4 Levels of Trading Experiencee-books, hard-copy books to paid courses. You are starting to realise what an immense field trading is and how difficult to grasp it is. In this level of trading you realise that you need to choose the right trading strategy. This should be a strategy that preferably fits your personality. You start asking yourself questions like: Should I be a day trader? Maybe, I will be better off as a long-term position trader or swing-trader. What would be the best strategy to fit in my daily agenda. This is the level where you are also asking yourself- can I do this part time, or I should quite my job to start trading full-time.
This is also the level of trading in which you are jumping from one trading strategy to another. You are too eager to realise that one of your trading buddies has just mastered a different trading approach and you are too excited to try it out. The trader inside of you is not really paying attention to money management or risk management. You just want to make “big bucks” and preferably quick. This is also the stage that probably 30-40% of the “traders” are dropping out.
Level 3- Tenbagger Trader
“Tenbagger” is a term introduced by the famous investor Peter Lynch. It is usually used to describe an investment that grows ten-fold. This is the level of trading, in which a trader has finally mastered how to hold a position longer. He/she are not making the same silly mistakes that they used to before. Now is the time to really shine and start bragging in front of your 4 Levels of Trading Experiencecolleagues and friends. Maybe time has come for you to consider quitting your boring job and working full-time as a trader. Or maybe you can send your track record to one of the prop trading houses and ask to join them. The world is your oyster and you are asking yourself how come you did not start trading earlier in your life. You are tapping yourself on the shoulder and start thinking if time has come to consider other types of investments. Maybe you can re-invest; or possibly you can find another hobby. This is the level of trading in which you are asking yourself the question if you should start your own trading blog and share your strategy.
It is all great until you wake up one morning and you realise that you were exposed too heavily and received a margin call. You feel like it is the worst day in your life. You want to cry (and you probably do) and start blaming yourself how stupid you were. This is the level of trading, in which you are releasing how important risk/money management is and how underestimated in your trading strategy it was. This is also a stage in which another 20-30% will call it a day
Level 4- The Five Percenters (a.k.a. 5%ers)
15 years ago I read somewhere that only 5% of traders really make it. I am not sure whether this percentage is right or is more like 0.5%. What is really true is that only a fraction of traders do really make it to this level of trading experience. Reaching this level does not mean that you will never fall back. There is no guarantee that you will be a 5%er forever. It means though that you have learnt the ropes of trading and know how to manoeuvre in the deep waters of this ocean. Being a 5%er means that you have showed stronger character than the majority of other players and you can finally tap yourself on the shoulder. But you don’t do it. You don’t do it, because you have learnt the hard way that the more you brag about it or the more excited you become can bode only one thing- losing your 5%er status.
4 Levels of Trading Experience
Being a great trader is not a natural talent. It is a skill that traders develop over the years. Being a 5%er means that you not only know where to take profit; more important than that- you know where to cut a losing trade. This level of trading teaches you that to know how to live in the unknown. Trading on this level means that you can watch the screen and still be objective. Being a 5%er means that you can hold a bit longer until price finally reaches your target. On this level of trading you are not thinking about trading systems anymore. You have turned into a risk:reward calculator and a pattern-recognition machine. You are never again afraid of not taking this or that trade. At the same time, you are never too afraid to enter in a trade slightly later. You are just a master trader.
What is your level of trading? Are you sure trading is for you? Trading is a field that makes you or breaks you. Every day is different and you need to be flexible enough to understand that. In this article I shared some of my thoughts about trading in 4 levels. Sometimes being a beginner is closer to the 5%er than you think. Feel free to share your comments in the section below.
This material is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.