The challenges of becoming a trader are quite similar to that of doctors, lawyers, or engineers, as one must first undergo a period of education, followed by a rigorous period of apprenticeship. There are many who give up and fail at some point in their career and move into other fields, but a few manage to succeed. Even fewer manage to succeed to a great degree and reach the top of their field, as only a few manage to become masters of their field, belonging to the elite group of their field. However, trading stands apart from these fields, as one must not only become a master of trading but must also do so without any prizes for second place. In many fields, one can become good enough to succeed, though not to a great degree, and still manage to lead a comfortable life. However, in trading, especially for an individual, only the superstars manage to make big money over a long period of time.

Pretrader. At this level, everything is new, and everything is hard. This is where the trader is learning the basics of charting and the basics of the market structure and also where the trader is learning the marketplace. A trader at this level should not be making trades, as the emotions will interfere with the learning process and the trader will lose money anyway. I think most traders should be at this level for at least three months. Papertrading, which is a simulated account and not a real one, is not particularly useful, although at this level, it might be useful in order to get the trader used to making decisions in uncertain situations and in reaction to the markets.

Novice Trader. This trader is still assured of losing, and therefore his maxim must be “Stay Small.” At this point, the trader is no longer trading for a profit; he is trading for experience and is learning how to handle the emotional issues associated with trading. Introspection and constant journaling are essential at this point in the development of the trader, who might be taking as much as six months or one year to develop. Mistakes are the hallmark of the novice trader, but they are also opportunities for learning, and therefore the trades must be kept small enough that mistakes are not too damaging to the capital or the psyche. However, if the process of journaling is ignored, mistakes become losses instead and are no longer learning experiences. One of the most important indicators of improvement at this point is that the novice trader will begin losing at a slower rate than before. He is still losing as a novice trader

Early competent trader. The first step to making money is to stop losing money. A trader who has a balance of wins and losses (before commission) has taken the first steps to competence. It takes a year or more of very hard work to become an early competent trader. At this stage, the trader still loses money each month from transactional costs and other fees.

Competent Trader. The first level of real competence is attained when the trader can pay his transaction costs with his trading profit. Most traders discover that they are finally able to attain emotional balance and control at this stage. They are not too emotionally invested in their results, and they can finally start to focus more on the process. They will have developed a routine for their market review, execution, and review of their trades. Journaling is still important, but many of the psychological battles are finally over, and one can start to think about how probabilities are changing as a trade progresses. It may take a year and a half to two years for a trader to attain this level. Think about this for a moment. Two years into your trading journey, you can finally expect to have attained your goal of being able to pay for your transaction costs.

Proficient Trader. Here, the trader begins to make money. While errors and mistakes are much less common, when they do occur, they are corrected and assimilated quickly. The trader has been exposed to the stressors of trading so many times that they have lost much of the emotional content, and the trader is now able to approach the markets in a relatively open and receptive state. While returns from the markets are still variable and there can be significant periods of loss, the trader is still able to perform at or above acceptable benchmarks for the markets.

Experienced Trader. It is difficult to conceive of a trader becoming a true veteran without going through a complete bull/bear market cycle, a time span of a decade or so in most cases. This trader has finally seen it all and has also become aware of the unknown and unknowable risks that are a part of all market activity. It is possible for young traders to learn much of the knowledge of the experienced trader at earlier stages of development, but there is no substitute for experience and seeing things happen firsthand

Time is important in at least two distinct ways. One is that you need to have the ability to commit to a certain amount of time with some regularity to the building of your knowledge and trading skills. The more time, within reason, that you commit to the building of your knowledge and skills, the faster your growth. It is important to have a certain amount of time to review the present market action and potential trades, and it is also important to have a certain amount of time to review your own trades and your own performance. It is better to have many repeated, regular work sessions rather than one long session, such as a 12-hour session on the weekend, for example. Most people, for example, would find that a half-hour a day, every day, is far more rewarding than a 12-hour session on the weekend. Remember, the reason for the length of the learning curve is that your brain is being restructured, and this works best with constant stimuli.

Capital It is, of course, perfectly possible for someone to trade for a living, and it is perfectly possible for someone to trade as a career, but there are many constraints that must be considered. Most people do not have any idea what the returns are for professional traders, so many professional traders feel that they will be able to support themselves on $100,000 (or less) of capital. At the institutional level, it is difficult for traders to generate a consistent return of 25 percent on capital each year, and traders who can do so are rock stars. It is easy for many competent traders to beat their benchmarks by a few percent, and if you can do so by even a few basis points, you can have a very successful career as a money manager. It is not realistic to hope that you are going to return hundreds of percent on capital year after year, although it may happen some years.

A Business Plan and Trading Plan It is always important to think of your trading as a business and approach it as such. Nobody would dream of setting up a business without enough capital, without planning for the growth of the business, and without having a vision for where the business will be in one, five, or 10 years, but that is precisely what most people do when it comes to trading, and of course, the big problem is that you do not know at the beginning if you will be able to develop enough skills for trading, and if you will be able to do it within a certain period of time. There are many more uncertainties than in most other areas of business, but there are parallels, such as if someone were setting up a company based on a speculative product that may or may not be popular, or an industrial process that may or may not be able to compete with existing competitors. In such situations, the companies would make very sure that , that they had access to resources they need to succeed, and that they had
sufficient capital to weather the start-up period, though their long-term success might be
less than certain