This is post originally appeared in early 2012.
An important distinction in trading success and success in general is understanding the difference between a milestone and a goal. Where do you want to go and what are you going to do to get there? The best people and teams I have been around always were good with momentum. When things went bad they were not compounded and when things were going well they poured every once into allowing it to continue and when it stopped they rebuilt.
There are three levels of success in trading. It is up to you to decide if they are goals or milestones.
Only costing you time
Breaking even is the starting point of your trading career not having a trading account. This level is hardest, it is the first level. You have to learn to crawl before you can walk and you have to learn to break-even before you can stay profitable. This is your base, your safe zone. Knowing that you can break-even is a huge confidence builder and hopefully the memories of getting there are so devastating you do not want to go back.
This level is only a milestone, you haven’t done anything yet.
Trading is about keeping the money not about making the money. What can I repeatable do? All other trades are not a trade at all, it is gambling. (There is a place and time to gamble but is not a strategy.) The first check you take out of your trading account will be the hardest money you ever earn.
But, it also shows you what you are capable of. When you can take money from your trading account on a regular basis, anything is possible. With possibility comes great responsibility.
The important part about this is level of success is you have to continue to increase what you can make. In the first level you know that no matter what you should be able to break-even over the course of a month. In the second level it is about building and do the right things to the point where you know you can at least make $1000, $5000, $20000 etc a month. This allows you to get to the next level.
This could be a milestone or goal, it is up to you.
The Mexico level
We had a saying in college that went, “it is like Mexico, you can do whatever you want.” It is great to make a living and often this is the only opportunity the market gives you. But there are times in a day, month, or year when you know you have them. This is when you get as big as you can. This does not mean go crazy with risk. But there are times that are more clear and being at the third level means taking advantage of them. The saying goes something like “let your winners run and get out of your losers”. That is bullshit when at this level. The right thing is to let your winning positions be big and losing positions be small and it does not matter how far they go. Can you more easily control how far a market goes or your position size?
This mindset and process is the difference between the top traders and everyone else. The problem with many traders is they try to skip from the first level to the third level before they are ready. Or they stay in the second level not knowing the third level exists. Once again the difference between a milestone and a goal.
This is just a brief overview of the different levels. The growth that happens in the individual between the levels could be talked about forever. What is the same is that getting through each requires the same process and no level is guaranteed. Even the most successful traders go through these level on a weekly if not daily basis. They just know how to get out of and stay in them at the appropriate times.
Remember, you have to get to break even before you can stay profitable. You have to continue to increase what you can make so you can have the bullets to unlock the final level. As you move up levels there is more responsibility and many get crushed by it. Do it with purpose and but it is hard to get it right the first time so risk appropriately.
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