Someone asked: What changes does a trader go through from long-term losses to eventually making money in the market, becoming consistent and profitable? What exactly did they experience? First, long-term losses come from chaos. The chaos arises because there is no direction. Today, you make a long trade based on fundamentals, only to think tomorrow that technical pressures warrant closing the position. After closing, the market continues to surge, making you feel frustrated. You chase the surge, then stubbornly hold on, treating every dip as a chance to add positions. You intend to cut losses, but someone tells you the price will surely rise... Most people trade chaotically, trying to find certainty in an uncertain market with uncertain methods, their days marked by anxiety like gamblers. These people exhibit symptoms: mania, anxiety, urgency. Like an uncontrollable rocket, they recklessly lash out, their sharp words jarring others... Many good traders go insane because of this. Chaos stems from not knowing what is truly right, and to break out of this pattern, you need to go through several stages.
Stage One: Recognizing Uncertainty in Market Movements
I've said it countless times. Recognizing the uncertainty in market movements forces you to think about another dimension: how to find higher-dimensional certainty in an uncertain market. Otherwise, your entire trading career will be spent constantly analyzing the next candle. It's a never-ending path.
Stage Two: Understanding the Source of Profits Behind Uncertainty
Just recognizing uncertainty isn't enough; without knowing the core source of profits, you'll be lost. You might set stop losses but not understand their purpose, read many articles but fail to translate them into concrete trading behaviors. Every method seems profitable, but you can't choose the right one. Your mind is filled with endless methods, all seemingly good, yet somehow not quite right. To make a clear choice requires a significant epiphany. Amidst endless noise, you must find a path to embark on. In an uncertain market, certainty comes from trends. To profit in trading, the core is to ensure that profits from trends cover all trading costs. This is the secret of this stage. It's an open secret, but trusting it is very challenging.
Stage Three: Realizing the Power of Rules
Once you understand market uncertainty and the core profit source, the next key step is to combine these into a cohesive trading logic. You need to appreciate the power of rules. You must establish entry rules, exit rules, and money management rules, turning your approach into a repeatable, standardized system. A common example I use is casinos. Casinos use rules to secure their probability advantage. You need to establish a trading system that secures your probability advantage in your trading domain. Rules bring extreme efficiency, enabling you to consistently and steadily apply your trading logic over the long term. By reaching this point, you've transformed from a gambler to a casino owner, relying on long-term inevitability rather than betting everything on one trade. You now have a trading system.
Stage Four: Understanding That Gains and Losses Are Two Sides of the Same Coin
After repeatedly executing your trading rules, you'll often be affected by market noise. There will be stop losses, consecutive losses, sustained drawdowns, charlatans with grand claims, so-called market wizards boasting unbelievable profits, and novices claiming they have the unbeatable secret. In such an environment, whether due to lack of experience or being a beginner, you will constantly sway between execution and optimization. This stage is time-consuming; some go mad, others are trapped by cognitive locks they've maxed out, while others inexplicably fall behind, chasing unrealistic profits. This phase is tough, marked by reshuffle due to market uncertainty and cognitive instability. You might trade with small positions and be outshined by a newbie or construct a system with moving averages and be laughed at by fundamentals experts. Noise is omnipresent. Despite understanding market uncertainty, it's easy to be pulled back in. In a field of uncertainty, survivor bias is rampant. A few can stand out, realizing through the uncertainty that the key is an ultra-efficient trading logic. The so-called "holy grail" is just a short-term illusion. Ultimately, this stage is about realizing one thing: my trading logic is strong to the limit, and I must execute it correctly. It's bold, but that's the only solution. Otherwise, a single remark could derail you, and your hard-earned insights might be shattered. The market humbles you, but you must stay confident. Hidden within is a strong sense of confidence, not overconfidence that incurs trouble. Realizing this relies on observing that in the long term, in highly efficient trading logic, gains and losses naturally align, and short-term fluctuations are just details.
Stage Five: Lowering Expectations
With a highly efficient trading system, you can now execute easily while ignoring noise. Understanding the fundamental equality of gains and losses, you stop rushing, no longer incessantly aiming to double your account in the short term. Looking back, you'll appreciate the long journey. In periods of loss, you manage risks; in trends, you surge ahead, advancing steadily, focusing on the long-term, and executing calmly. By now, your account should reflect what you've aimed for.
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