4 Levels of Trading Experience
4 Levels of Trading Experience
by: Colibri Trader
I would like to share with you another aspect of trading- my fascination with the different levels of trading experience. Starting in one of the latest discussions in the comments section, I shared with one of you that experience in trading comes in stages. I call those the 4 Levels of Trading. So, let’s have a deeper look into those stages and what they really are
Level 1- The Beginner
This stage starts when you realise there is a way to make money while staying at home. At this stage you are probably neither aware of the dangers of trading nor of where to start looking to understand trading. In this stage you are full of enthusiasm and want to conquer the world. In this stage, you are starting to realise that more money can be made through leverage and you underestimate all of the dangers that trading on margin carries. This is the stage that probably 20-30% of “traders” are quitting.
Level 2- The Student
The second level of trading is the learning period. In this period, you are trying to lay your hands on literally everything that is trading related. This is anything from trading articles, free e-books, hard-copy books to paid courses. You are starting to realise what an immense field trading is and how difficult to grasp it is. In this level of trading you realise that you need to choose the right trading strategy. This should be a strategy that preferably fits your personality. You start asking yourself questions like: Should I be a day trader? Maybe, I will be better off as a long-term position trader or swing-trader. What would be the best strategy to fit in my daily agenda. This is the level where you are also asking yourself- can I do this part time, or I should quite my job to start trading full-time.
This is also the level of trading in which you are jumping from one trading strategy to another. You are too eager to realise that one of your trading buddies has just mastered a different trading approach and you are too excited to try it out. The trader inside of you is not really paying attention to money management or risk management. You just want to make “big bucks” and preferably quick. This is also the stage that probably 30-40% of the “traders” are dropping out.
Level 3- Tenbagger Trader
“Tenbagger” is a term introduced by the famous investor Peter Lynch. It is usually used to describe an investment that grows ten-fold. This is the level of trading, in which a trader has finally mastered how to hold a position longer. He/she are not making the same silly mistakes that they used to before. Now is the time to really shine and start bragging in front of your colleagues and friends. Maybe time has come for you to consider quitting your boring job and working full-time as a trader. Or maybe you can send your track record to one of the prop trading houses and ask to join them. The world is your oyster and you are asking yourself how come you did not start trading earlier in your life. You are tapping yourself on the shoulder and start thinking if time has come to consider other types of investments. Maybe you can re-invest; or possibly you can find another hobby. This is the level of trading in which you are asking yourself the question if you should start your own trading blog and share your strategy.
It is all great until you wake up one morning and you realise that you were exposed too heavily and received a margin call. You feel like it is the worst day in your life. You want to cry (and you probably do) and start blaming yourself how stupid you were. This is the level of trading, in which you are releasing how important risk/money management is and how underestimated in your trading strategy it was. This is also a stage in which another 20-30% will call it a day.
Level 4- The Five Percenters (a.k.a. 5%ers)
15 years ago I read somewhere that only 5% of traders really make it. I am not sure whether this percentage is right or is more like 0.5%. What is really true is that only a fraction of traders do really make it to this level of trading experience. Reaching this level does not mean that you will never fall back. There is no guarantee that you will be a 5%er forever. It means though that you have learnt the ropes of trading and know how to manoeuvre in the deep waters of this ocean. Being a 5%er means that you have showed stronger character than the majority of other players and you can finally tap yourself on the shoulder. But you don’t do it. You don’t do it, because you have learnt the hard way that the more you brag about it or the more excited you become can bode only one thing- losing your 5%er status.
Being a great trader is not a natural talent. It is a skill that traders develop over the years. Being a 5%er means that you not only know where to take profit; more important than that- you know where to cut a losing trade. This level of trading teaches you that to know how to live in the unknown. Trading on this level means that you can watch the screen and still be objective. Being a 5%er means that you can hold a bit longer until price finally reaches your target. On this level of trading you are not thinking about trading systems anymore. You have turned into a risk:reward calculator and a pattern-recognition machine. You are never again afraid of not taking this or that trade. At the same time, you are never too afraid to enter in a trade slightly later. You are just a master trader.
What is your level of trading? Are you sure trading is for you? Trading is a field that makes you or breaks you. Every day is different and you need to be flexible enough to understand that. In this article I shared some of my thoughts about trading in 4 levels. Sometimes being a beginner is closer to the 5%er than you think. Feel free to share your comments in the section below.
If you believe you are at Level 1- check out my FOREX Basics article
If you think it is your trading strategy, you can check out my professional Trading Strategy
or get some of my Free E-Books or just e-mail me on: firstname.lastname@example.org
7 thoughts on “4 Levels of Trading Experience”
Thanks for putting this article together, while we are on the subject the graphics and format you choose in your articles is very appealing. I should have mentioned this sooner but have always thought it.
I think I’m at the end of stage 3 not quite into 4 yet but have shown 4 tendancies.
I want to take it further than 4 though, I know there are higher levels of trading out there.
Within the same month I reach the end of level 4. I will start travelling the world to meet with even more experienced futures traders. The ones that are willing to meet me, I would then like to talk shop and compare notes hopefully I have something of value that can be reciprocated. Perhaps even opportunities could arise.
As long as I can maintain my independance and keep my anonymity I am excited about the future prospects and opportunities.
As I said to Harry- the transition from 3-4 is the hardest of all. I am not sure what is further than 4- maybe black matter of some sort 🙂 or alien traders… or maybe level 5 is actually level 1, where you are coming back to basics. As the famous quote by Oscar Levant says: “There’s a fine line between genius and insanity. I have erased this line.”
Regarding travelling- that is probably one of the best things a man can experience. There is a great book from Henry Thoreau about the nature and seclusion called Walden. It is actually showing us that we need much less than expected to be happy and live harmoniously! Enjoy life
Time will tell trading has been a gruelling journey for me !
In re-thinking I think I’m at 2.5 level
Time is the best indicator. Regarding the level, I think we are constantly asking ourselves what level we are on, while we should concentrate on the P/L. As long as you have a positive P/L, you are on the right track my friend!
hi colibritrader and dan,
my check list :
level 1 – checked
level 2 – checked after taking colibritrader’s professional course
level 3 – thanks for sharing on how not to fail this level, must not be overconfidence and overexposed so i can reach level 4.
level 4 – remember level 3 stage.
what i have learned from trading, eventhough we had been warned, we need to experience it to pass a level.
i mean although i have read about level 3 from colibritrader, i don’t think i have passed this level until i learn it the hard way (stopped out by margin call and remorse for some time).
once i passed the remorse event, then i will more sure remember level 3 lesson and remain in level 4 (hopefully).
for me level 4 is good enough to stay on the game.
life is a game, money is how we keep score – read it somewhere during my trading quest, need to google to know whose quote it is.
never give up!
Great to hear and read about your checklist. I am happy that I have contributed towards your improvement as a trader. I would say the transition between level 3 and 4 is hardest. It is almost like one of those arcade games, where you have the strongest opponent to fight against. In this instance, the opponent is yourself. It is a continuous journey with an end destination- positive P/L.
googled it, the quote is by ted turner
life is a game, money is how we keep score