How to be a profitable trader

How traders evolve as time passes – Steps to succeed in trading.

how to be a profitable trader
How to be a profitable trader

Introduction – Tales from today and yesterday

Yes, I know, what a presumptuous title for today’s article, but I couldn’t find a better way for this information.

Financial markets are always evolving, adapting to changes, new technologies and information, but still, they aren’t efficient, so traders still participate trying to make a profit in the market while they give liquidity.

We are traders and we came here to stay, some of us use algorithms in order to take a role in researching the markets while our execution and risk management are automatic, others still do all by themselves manually, that’s not relevant in order to be a profitable trader.

But we all have something in common.

We all evolve and most of us, we are still retail traders, but time, savings and good runs in the market makes our accounts grow over time up to a decent amount of money, but we all started the same way.

I still remember when I started trading, i used a very bad and unreliable CFD broker, I paid $50 for a trading course promoted on Groupon, and you can imagine how that ended, right?

Yes, “Teacher, look at this bullish wedgie, should I trade this?”,

You know the drill, we all start doing basic Technical Analysis that barely works and then we start to improve.

The reality of trading, instead of what you are going to be told on those courses, is something like this:

How to be a profitable trader
How to be a profitable trader

Step 1 – Technical Analysis for dummies

No one should feel embarrassed about this, but a lot of people deny it. Facebook groups, Metatrader for Mobile charts, supports and resistances without any criteria, wedgies, shooting stars and more patterns with hilarious names.

Do you think any profitable trader will trade things like this?

Technical Analysis on Facebook - Steps to be a profitable trader
Technical Analysis on Facebook – Steps to be a profitable trader

If I take a random walk on Facebook groups, I can see a lot of stuff like that. One “custom” indicator, a couple of trend lines and you are good to go. Extra points if you want to be a profitable trader using Metatrader 4 for Android/iOS.

I may sound a little bitter talking about things like this, and I don’t have a bad intention, neither i want to make fun of someone learning how to trade, but still I think this is a very important point to talk about.

Signal providers are usually a big scam, a simple algorithm that send messages to a Telegram or Discord channel when a moving average crossover happens.

The markets have changed a lot in the past twenty years and I can’t state that enough, and if you want to be a profitable trader you are required to evolve as the market does.

We have Machine Learning techniques (IA), High frequency trading, more computational processing power than ever even if Moore’s law is already broken. Still your books are 40 years old, and that’s fine, with nuances.

I’m not saying that all Technical Analysis is bad for your account and your trading, and i’m not saying that you aren’t going to be a profitable trader if you only use that, but everything in this life is not “black or white” unless data confirms your hypothesis, then it is.

Some TA patterns still works today, and some interesting trading strategies using only price values without anything else. For example some systems created by Larry Williams, but they need a makeover, new parameters, new filters, and that’s called optimization.

Not everyone passes to the next level, as each is level is a filter to determine your will to study and learn skills to be a profitable trader.

The secrets that keep most traders in the gate of this step:

Step 2: I’m a profitable trader yet? Studying your edge

At this point, you are trying to study your edge on the market after sometime lurking around forums and websites, this usually takes over a year, some people as me, we code those edges, others study them with a paper and a pen. But both types are trying to extract valuable information from the market.

Remember, markets are not efficient, edges and inefficiencies are still available to the public, and at this point you are studying those and much more.

This point is key, in most cases this is the point that determines if you are going to continue trading or not.

Some people on this step usually reach for a mentor, a decent one, others like to be self-taught, the last option requires more time but both are valid, be aware of scammers, otherwise you are going to go back to the first step. If you want to contact a mentor you can check my online algorithmic trading course.

At this point you have started to realize that there’s more to trading than opening a trade and waiting to see a profit. You have realized that you are the trader, the risk manager, the analyst, the researcher, every role existing in a hedge fund or a CTA. Because you are the manager of your own equity and the sole responsible for it.

Studying is key, managing risk is something extremely important here if you want to be a profitable trader.

A great book to help you understand better this phase:

Evidence Based Technical Analysis
Evidence Based Technical Analysis

People who pass this point usually never looks back, since the heaviest part of trading is already studied, focus on your edge, on learn how each asset really works.

Interesting free research to help you understand what is a market edge.

Pairs trading with gold mining stocks

Algorithmic Trading Research

Volatility: Study and Trading Systems

Extra point: The algorithmic approach

There are a couple differences if you are taking the algorithmic approach that you should have in mind.

Your average Forex platform vs Futures platforms // AWD Platforms (Futures, Forex, Stocks… Platforms like Multicharts) will have differences and it will help you to create your workflow, according to what kinds of financial instruments you are going to trade make sure to have the right platform.

At this point of the progression is when i started coding in Metatrader 4, an average Forex platform that allows algorithmic trading.

If you want to learn how to code, for free, check out my Youtube courses:

Step 3: Your first good and stable year

If step 2 is the heaviest filter, step 3 is when you are starting to be a profitable trader. You have your trading edge, and you  understand the risks you are willing to take, the worst has already passed.

Usually at this point you are starting to show consistency for more than six months (usually a year), your account is starting to grow here.

You are on the first step to be a profitable trader, keep managing your risks and exploring more about how markets work.

Usually at this point discretionary traders starts looking for data that helps them create better analysis while algorithmic and quantitative traders keep improving their workflow in order to extract, process and verify that data in a fast way.

In this step you are going to face changes and decisions, Do I really want to trade for a living? Should I quit now my 9 to 5 job?

In most cases, traders tend to raise capital first, savings, wages, income, other investments, family & friends and a lot more.

If you want to trade for a living, you need a big account to cover for any unwanted risks and still being able to trade, and you already know that. No more martingales and no more using a 1:200 leverage for swing trading.

You can’t get rich quickly, despise what people tell you, luck and variance play a big role in trading, you need to have great trading systems and prepare for the worse, at this step you already know that.

About capital and alternatives I have written this article some days ago, recommended lecture:

3 Reasons why funded accounts are a bad idea

Recommended book for this step:

Practical speculation by Victor Niederhoffer
Practical speculation by Victor Niederhoffer

Final step: Trading for a living

That’s it, as you can see the main focus here is improving and thinking outside the box, if you want to be a profitable trader in most cases you are going to follow the same steps as almost all of us did, exceptions are if you work for a prop.firm or you start with higher relevant education.

You are going to spend some months figuring out why Technical Analysis doesn’t work, why Forex is not the best product to trade but a great one to learn, how find edges and code them, raising capital and growing your account, up to this step, after some years of study and sacrifice you are a profitable trader, congratulations.

My notes on trading – My journey

Being a profitable trader took me a lot of years, an awful lot of time and sacrifice, but all in life is the same, do you want to be the best professional on your field? Years of study and practice. The field is irrelevant: Music, coding, being a good mechanic…

I know this article is going to irritate a lot of people. “What a title, how to be a profitable trader”, but at least, i can tell proudly that this is my journey as an algorithmic trader, I’m not ashamed to admit my beginnings while others try to hide them in order to look more professional.

I’m quite known in the Spanish community, and not in the English one, and this gave me an interesting insight about what the English market looks in traders and influencers, and what I saw it was devastating, how to get rich quick, allegedly professional traders that draw trend lines while Fund managers laughs at them and things like that, a horrible tale indeed.

While the English scene is quite contaminated i can say that i’m grateful for both scenes and try to contribute my best, thanks to my Spanish project I’ve landed in very interesting positions in business related to trading that is still helping me to reach a great amount on my accounts while i grow them.

As always, i hope this can help you on your journey and avoid you some mistakes.

Víctor – Follow the Edge.