Almost every trader I have met starts on the wrong end of the learning process.
Yes, myself included.
This is the well-worn path that I have found traders take in their quest for trading success.
This journey is too difficult for most aspiring traders, so they give up and return to their cubicles. That's why the success rate of traders is so low.
But for those who stick it out, the rewards can be tremendous.
So let's take a closer look at how this path goes. I mention this because I want to help you avoid the pitfalls of learning to trade and also help you understand the importance of figuring out your trading personality first.
I will also show you the three elements of your trading personality that you will have to understand, to get the best results.
…and possibly shave years off your learning curve.
The Typical Trading Journey
It is a little painful to write about this because I have spent way too long on some of these steps. You can probably relate.
Hopefully, by understanding the common stops on the trading journey, you can avoid the ones that won't help you progress as a trader.
Here we go…
You Hate Your Job and Discover Forex…Among Other Things
It's Monday morning and you are sitting in your desk at work.
“Shit, this sucks,” you tell yourself.
So you start surfing the internet to look for ways out of your J.O.B. The usual stuff comes up…
- Real estate investing
- Stock trading
- Online Marketing
- Creating travel videos on YouTube
- Starting your own stripper cam channel
Since you found this site, I'm assuming that you picked Forex. You are excited it get started on your new trading journey, so you rush into it.
Here's what happens next…
You Join a Trading Forum or Group
Now that you are committed to becoming a Forex billionaire, you join a free trading group or forum to start learning the basics.
This is actually a great place to start. You can learn the lingo and get help setting up your software. The best part is that it's free!
You follow a few of the most active threads and try some of the trading systems. The forums help get you started, but they are also really confusing.
Some people say one thing.
Others say the opposite.
…and they start to get annoying. Conversations tend to degrade into third grade name calling.
So you look for some real education to move you forward.
You Take Your First Course
Next, you start Googling for a reputable trading course to take. You choose a course based on how profitable the instructor is and if he or she trades professionally.
Things go well for awhile and you are excited to be learning this proven trading system. Learning the system is simple enough and you start trading it in that real money account you just opened.
You Make Some Money
The trading system is working pretty well and you have your first profitable week! This trading stuff is easy, you think.
So instead of risking 1% on every trade, like your instructor recommends, you start risking more.
Maybe 5% on some trades.
But you risk 10% only on trades that you are really sure about.
It won't be long until you turn that $500 into $100,000!
You Blow Out Your Account
Then it happens.
You take too much risk on a trade, forget to use a stop loss and when you are at work…BAAAM!
You get an alert on your phone, telling you that you just had a margin call. All of your trading capital is gone.
So now what?
The Search Begins For a Trading Robot (EA)
You fund your trading account again, but this time you are going to be smart. Since you cannot check your trades while you are at work, you will get a trading robot to take care of your trades for you.
So you get back onto the internets and pick out a couple of Expert Advisors that look promising. You load them onto a VPS and let them rip.
Guess what?! They actually start making money…in the first week.
Now that your trading income is “on autopilot,” thanks to your EAs, you decided to branch out into other areas of income generation.
At this point, you tell your friends and family that you have finally figured out this trading thing.
You Do the Other Things Too
Remember those other money-making opportunties that you found at the office? Why not explore those too?
So you start going to real estate investing meetings and even try your hand at online marketing. These activities distract you from your trading and you lose focus.
I call these activities green fairies because they tempt you with the lure of making more money, but they fly away as quickly as they came.
Around this time, your EAs usually starts to crap out. It usually begins with the robots trading flat.
Losing a few trades, winning a few trades, then losing again. Then they start to lose more money than usual.
What's going on here?
You finally realize that if you don't know how an EA works, you don't know when it has stopped working. So you pull the plug on your automated trading and re-commit to learning to trade for yourself again.
Welcome to the Trading Silodrome
Thus begins the cycle I call the Trading Silodrome. You jump from course to course and trading system to trading system, in search of your holy grail.
This phase can last months or even years.
Every time you lose money with a trading system, you think that it's the trading system's fault. So you keep paying for courses, hoping that the next one will finally be the one that leads you to the promised land.
After awhile, system hopping gets tiring. Right about now, you are at rock bottom and are questioning if trading is right for you or not.
This is where most people quit and crawl back to their cubicles.
Now you have a decision to make…
Admit defeat, or keep going?
You have always succeeded at what you set your mind to, so you keep going…
The Search Begins for a Money Manager
Wouldn't it be great if you could get a professional money manager to trade your money for you?
Instead of having a mindless robot trade your money, you decide to find a professional money manager.
Yeah, that's the ticket!
So you split your remaining risk capital between two traders, John and Roger.
Well, John turns out to be a crook like this guy and last you heard, the authorities were chasing him through South America.
Roger is actually a really good trader. But the technology that copies his trades into your account screws up and you end up losing money, instead of making the 10% that Roger made last month.
You decide that getting a money manager isn't always all it's cracked up to be.
Back to square one.
You Find a Mentor
Determined to figure this thing out, you assess your options.
At this point, you have tried a lot of different things.
So what's left?
Get a mentor of course.
So you look around for the most successful trader you can find and schedule a private mentoring session. It costs $200 an hour, but you figure it's worth it.
The first mentor doesn't work out, so you try another.
You are back on the Trading Silodrome again, but this time it's costing a lot more money.
But what else is there?
You Figure Out Your Trading Personality and Trade With It
You are just about ready to give up, then it hits you!
There are some trading systems that you absolutely hate to trade and others that you are sure you could figure out, if given enough time and coaching.
Now you go back through all of the notes that you collected over the years, from your trading courses and private mentoring.
That's when this usually start to click.
What if You Started From the End?
That whole process listed above can take years. I've personally been through it and I know many, many traders who have had a very similar experience.
But how much time would you save, if you started with understanding your trading personality at the very beginning?
Trading Timeframe Personality
The first thing that you need to understand is your ideal trading timeframe. I call it your Trading Timeframe Personality (TTP).
It will take a bit of experimenting to find out which timeframe works for you. There are basically three timeframes:
- Day trading
- Swing trading
- Long-term investing
You can take a few systems that you learn on the forums and trade them in a demo account. This will allow you to get a good feel for which timeframe suits your personality and daily schedule the best.
Remember, you are looking for the timeframe that matches you best. Not the system that makes the most money.
You can usually make more profits by trading more currency pairs or trading more systems. But is it much harder to trade against your personality and daily schedule.
Trading Setup Personality
Along the same lines as trading timeframes, are the different trading setups out there. There are basically two types of setups that traders look for:
- Technical setups
- Fundamental setups
You might be good at one or both. But the key is to start with just one and master it, before moving on.
I call this figuring out your Trading Setup Personality (TSP).
It is possible to make money as a technical trader or a fundamental trader…or some mix of the two. My eyes start to glaze over after I read a couple of fundamental reports, so I prefer to stick to 90% technicals and use only 10% fundamentals.
But it will probably be different for you.
If you are more of a technical trader, then you can break that down into three different categories:
- Breakout patterns
- Trend patterns
- Countertrend patterns
Figure out which one suits you best and start there.
Trading Risk Tolerance Personality
The third important thing to figure out is your personal risk tolerance. I'm sure that you have heard many times on the internet, that you should not risk more than 2% of your total account on one trade.
…and this is excellent advice.
But the question then becomes, how much should you risk?
In reality, there is a per-trade risk tolerance that you will feel comfortable with, and you should not risk more than that, or you will see your performance degrade dramatically.
This is your Trading Risk Tolerance Personality (TRTP).
It is actually hard to figure this out in a demo account because you are not risking real money. So I would recommend opening a small live account with $100 and trade nano lots.
After you backtest a trading strategy, you can also use a drawdown calculator to show you how much you should risk per trade, in order to avoid a X% drawdown.
For example, if you would freak out if you lost 20% of your account, but you would be OK at 19%, then put 20% into the calculator. Next, put in the other stats of your system. Then play with the risk per trade until your risk of hitting a 20% drawdown goes to zero (or close enough).
When you start your trading journey knowing these three things about yourself, will you give yourself a much better chance of success.
If you know your ideal trading timeframe and market conditions, you can choose the right education that will help you work with your innate strengths and not against them.
This will eliminate a big percentage of courses and mentorships out there and will save you a lot of money.
When you understand the risk tolerance that suits you best, you can use the risk that you are comfortable with, when you take any trading course. When you do this, you reduce the chances of blowing out your account and you can stay in the game longer.
You will also have greater confidence in your ability to learn to trade for yourself and that will help you stay away from trading robots, money managers and green fairies.
As you can see, starting with understanding your personality, instead of only learning trading systems, can have a huge payoff.
But most traders don't do it that way. I don't blame them, it goes against human nature.
Hopefully, now that you understand the right way to do it, this will help you improve your trading faster.
If you have been through the entire process, is that about right? If you haven't, then where are you in the process?
Let me know in the comments below…