The 3 Phases of Trading Business Maturity By Jim Harrison of Emini-Master.com* Posted: August 20, 2004

Mail this to a friend

As a new trader, or as one who has gained a new vigor toward be successful, we must understand that the road ahead of us will not be easy, nor will it be a quick journey. The path that lies ahead is filled with daily challenges that will test our skills, both technical and mental. In fact, most traders fail to progress past the start-up phase. They fail to learn:

• To take a loss
• To be wrong
• That, to succeed, they must take the time required to learn it!

The one constant fact that all successful traders, including Borselinno, Fisher, Jones and more, all agree on in this: It takes time to become a successful trader. Borselinno says at least a year; Fisher says maybe 2 years, but they all say this business has nothing to do with instant success. Quite the contrary: Most successful traders say that Survival is the first key to success. Expressions such as, “Love to take a loss” or “Keep the losers small” all provide big clues that, indeed, we must survive to prosper.

As a business consultant, I have often been contracted to work with business owners, corporate executives and decision makers to offer fresh ideas on business operations. Throughout the years, I have documented specific cyclical patterns of businesses as they evolve. The remainder of this article cites some characteristics of the 3 identifiable phases that I have witnessed and how I relate them to trading as a business.

Typical Progressions of the Start-Up Phase of a Trading Business
We:

• Are lured by money
• Perceive a low barrier to entry
• Are influenced by “Peer Pressure” news hype
• See that a friend did this and that
• Read a few books
• Go to a few seminars and get all that is freely available online
• Find some speculative capital
• Trade
• Win
• Lose
• Lose
• Find we need the right tools (such as eSignal) but think we can’t afford them
• Think, “I need to try something more difficult.” even though we don’t understand what we just tried nor do we have the tools or the education
• Lose more
• Understand that we truly do need to work on “planning” and a way to shift our emotions from an adversary with respect to our goals to a powerful force that guides our actions
• Finally, understand that it is okay to take a loss (In fact, we discover that this was the first lesson we needed to learn to survive!)

Survival is actually the goal for the start-up phase. So, then we graduate to the Growth Phase.

Typical Progressions of the Growth Phase of a Trading Business
We:

• Make a commitment to getting education and the proper equipment
• Actually learn something
• Plan
• Trade with better results
• Decide to make it complicated for some stupid, unknown alien reason
• Lose patience
• Lose
• Simplify again, refining
• Now understand the importance of patience in all of this
• Take more risk
• Are humbled by the market even more than ever before
• Now have trouble pulling the trigger when the set-ups are very clear
• Begin to understand the importance of discipline
• Discover the mechanics of trading
• Learn the life cycle of a trade
• Commit our capital as planned, using strict money management
• Get better
• Start actually accepting responsibility for our own actions
• Stop searching and start focusing (That is the key to graduating to the Maturity Level.)

Typical Progressions of the Maturity Phase of a Trading Business
We:

• Are patient in our endeavors
• Are disciplined enough to trade our plan
• Understand leverage
• Practice strict money management
• Take less and less risk, preferring to use size on stronger signals
• Learn how to handle huge dollar profits but keep our perspective (return on investment versus time to money)
• Find out how to handle huge dollar losses but keep our perspective (return on investment versus time to money)
• Truly understand the life cycle of a trade and can plan accordingly
• Commit to a lifetime of education and learning
• Now trade on auto-pilot, choosing to participate when the best risk reward ratios exist
• Make our main priority to trade our plan

The bottom line is that many people have traveled this path, but very few have succeeded. I think it prudent as we travel the path to be aware of the natural tendencies regarding the progression of ALL businesses and how we can prepare for bettering our odds through the use of the proper tools, such as eSignal, and education (such as that provided by eSignal), as well as serious planning for each phase.

*Reprinted (and modified) with permission from Jim Harrison, Emini-Master.com

Read More Weekly Trading Education Articles.