On your way to becoming a better trader: phase 4

Today we are dealing with phase 4 – the already successful trader. As a beginner in stage 1, the goal is to get there. There are 1000 books under the title ‘How to become a successful trader’ and one potency more than the last wisdom on the internet with many coaching offers and more.

Actually, this is the goal for everyone from level 1 to 3 times to ascend to level 4 and to be able to live from trading or to beam himself into the so-called financial freedom.

As a beginner you often have the wrong picture of a movie trader in front of you, hanging on the phone, waving around in the air, screaming, clenching your fists, raising your hands when you have once again fetched millions from the market – and similar pictures and myths.

In reality, however, the adrenaline rush in Phase 4 is usually over. In phase 4 one has understood or must recognize that one has become an assembly line worker.

You do the same thing every day and similar to a robot you work through your processes and know that these processes work, even if you produce rejects there and there, i.e. losses.

As great as this life is imagined to be at first, it can be hard. The challenge begins to work out processes to make the trading processes replicable in order to exclude an error rate as far as possible and to remain in this level of trading. You know the stories of the top athletes who suddenly don’t manage to be successful anymore, because suddenly ‘something runs differently’. I.e. one must acquire processes in order to exercise the learned processes.

Now it can be that one installs a component into the car which is defective, and the assembly line worker cannot recognize this damage of the component. Nevertheless the car is damaged, has to be individually manufactured when it comes from the assembly line and does not survive the acceptance test – and thus costs considerably more than originally calculated, although the chain of workers involved has functioned perfectly in the process – a so-called unavoidable loss, where all rules of the process have been adhered to.

If, however, something is installed incorrectly because one has not adhered to the rules, the production calculation is also damaged, because this incorrectly or sloppily installed part must be rebuilt afterwards in the individual production and that would have been an absolutely avoidable loss if the rules had followed. I.e. one did not adhere to the predefined process.

The worst thing that could happen is that the process error of one or more assembly line workers is so massive that the following stations can’t continue manufacturing this car or you have to stop the whole production line to finish the car enough to send it to the next station – and this can lead to a financial super-jam if a production line suddenly stands still. …And such incidents also occur in extremely process-oriented and -stylish large companies.

You wouldn’t believe it, but such companies spend an infinite amount of money to check and train their employees for process accuracy/loyalty again and again, or to coordinate their teams perfectly with each other, so that they work together so efficiently that the whole processes run as error-free as possible and thus the avoidable losses are kept as small as possible.

Such vehicle production processes have usually been worked on for years in order to make them as optimal as possible in order to filter out every conceivable possible error and they are highly complex in their entirety. An overall process monitors or controls many small processes in the individual production stations. This is done by checking the production steps again and again afterwards, finding out what could be optimized and incorporating these optimizations into the processes.

In trading you are responsible to write your own ‘process book’. There are no process optimization departments behind it, which permanently control and optimize the processes. You are on your own – unless you work in a trading floor of an investment bank, a hedge fund or the like. But these are exactly the opponents in trading against whom you have to compete. In contrast to these BigBoys, all you can do is to observe yourself, stick to your discipline and perform trade analysis again and again to avoid error potential and optimize your own trading processes.

One is process developer, process controller, process optimizer and process executor in one person. And this is exactly what makes life as a trader so unique but also difficult. What’s the use of being able to track your processes for years, but after some time, due to market changes, these processes can no longer be applied – and need to be changed or optimized?

Just think of the many pit traders who have successfully traded unimaginably large sums of money on the trading floor for decades, but one pit after the other has been closed down and these traders have lost their jobs. Only very few of these traders have been able to manage electronic trading on trading platforms or have failed miserably. The following video shows this in its purest form: LINK

The market has changed, the previous processes have no longer worked and traders have failed. It must also be said that many of these pit traders have rested on their laurels and ignored the forthcoming development of the markets.

Why do I ride around on the processes and their optimization like this? Quite simple. In stage 4 you have understood how to deal with the markets, and you have worked your way through this phase with discipline, consistency and self-confidence – with the market situation prevailing at that time.

Think about this – markets, technologies and the speed of markets are changing. More and more trading is done via fully automated systems. This does not mean the 100Euro ExpertAdvisors of a well known platform. Instead, many millions of euros are invested in fully automatic ‘trading machines’ from major banks and hedge funds, which are used to shovel crazy amounts of money.

New asset classes, such as Cryptos, etc., are added. In the future they will trade via digital exchanges. Blockchain and 5G technology will change a lot.

In addition to this, after more than 10 years of uptrend, where you didn’t have to do anything else than buy more bears, you can always have an extended sideways phase or a bear market.

Have you prepared for changing markets? Aren’t you going to make the same mistake as the pit traders who said the floor will still be there in 100 years? Do you observe where the markets are moving technologically or technically?

In a previous article I wrote that one should be careful not to do too much training and to run after every cow that is driven through the village, because at this time it might only be confusing.

In phase 4, however, it is absolutely necessary to orientate oneself and listen to new things. In this phase, however, you are already so far along that you no longer jump from one direction to the other. Just like a car manufacturer doesn’t start building razors tomorrow.

The car manufacturers have to adapt or prepare themselves for new upcoming technologies and have to decide already now, whether the e-car or the hydrogen fuel cell is the next technology. This is exactly how a trader who wants to remain successful over the years has to prepare himself for the ‘fuel cell’ in trading and also wants to belong to it in 10 years.

The work-life balance is enormously important for a trader in this phase, in order to keep mentally fit and to be able to deal with the pressure of the markets in the long term, no matter how difficult it is to adhere to his rules and processes. Here you should keep in mind that if you manage to stay in this level, your account will grow as well …. And thereby naturally also the sums which one acts no longer from a 10K but perhaps from a 500K account come and that naturally the psyche more loads.

And you have probably traded a 10K account next to a regular job, where the money generated by your job is credited to the account every month with more or less work. All you have to do now is live from trading and then most likely go through DrawDown phases that can take a lot out of your mind and body if you’re not mentally up to date.

I.e. Mental-Coaching is from a certain phase or period of time in trading a thing you should allow yourself. To work on oneself never hurts and protects against mental amok runs. Life is life-threatening – but you can protect yourself from unnecessary incidents by thinking ahead and not accepting the current situation and resting on it.

Because there’s one thing you have to be aware of: It’s not the trade that matters that I do next. The most important trade is the one trade I do exactly today in 10 years … if you know what I mean!

Disclaimer:
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. All information on this website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold this information harmless in any and all ways.

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