If I could go back in time and start learning to trade again, there are many things I'd do differently. But most importantly, I'd follow the 3-phase structure I'm about to explain to you.
This approach isn't something particularly unique to trading. Ultimately, trading is a skill and we should learn it in a similar way to any other skill. Rather than jumping straight to the end-game and trying to make money instantly, we should follow a logical progression.
By following this 3-phase plan, you can reduce your chances of losing money and significantly increase your odds of long-term success.
Phase 1: Learning the skills and concepts deeply
Objective: Develop your skillset to a point where most individual actions are at a level of unconscious competence
Account type: Demo account or trading simulator
Neuroscientists (who research the brain) have discovered that when we're new to a skill we have much more activity taking place in our brains. As we become more experienced, fewer neurons are firing since many of the actions become automated in non-conscious parts of our brain. We no longer have to consciously think about what we're doing.
This is important because we have limited capacity in our conscious brain and it takes a lot of energy. Therefore, as many actions become automated, it means experienced traders can focus on the specificities of a situation and decide the best course of action. They don't have to think through every aspect of what they're doing.
On the other hand, if a beginner tries to trade similarly to an experienced trader, they'll be overloaded. They'll be thinking through all aspects of the skill, as well as the uniqueness of the situation they're facing. As a result, they'll either perform the skills incorrectly, miss vital information, or take inappropriate shortcuts.
Eventually, these can become bad habits and conditioned responses that linger throughout a trader's career.
Instead, the optimal way to avoid this is to focus on developing individual skills repeatedly until they become more automated. Only once that's achieved should you move onto live market situations and attempt to put all the skills together.
The best way to develop these individual skills is to go through purposeful practice sessions. Assuming you've already chosen a method of trading you want to use (such as the Duomo Method), you can then break the method into 'chunks' (individual skills) and spend time going through repeated purposeful practice sessions for each chunk.
I'd recommend starting off using a trading simulator for this, and I'll explain why in more detail in a future email. My recommended simulator is Forex Tester (and if you use the code DUOM10 you can get 10% off).
Only once you can execute all skills efficiently, without much conscious thought, and with a low error rate, should you move onto Phase 2.
Phase 2: Achieving consistent integration
Objective: Achieve consistency in your trading approach and decision-making
Account type: Demo account or trading simulator
As we discuss in the Trader Masterclass, many traders believe once they've learned the skills they need to focus on becoming profitable.
That belief is wrong...
Instead, the next step is to aim for consistency. By trading in a consistent way, it means you know what you're doing is repeatable. It also means you can collect data that is meaningful, which you'll use in Phase 3 to transition from just consistent to consistently profitable.
So in Phase 2, you're bringing together all the tools and concepts you learned individually in Phase 1. You should start working on executing a trade from start to finish: analysis, trade entry, trade management, exit, and data tracking (e.g. in your trading journal).
The aim is to start putting together a logical system that allows you to make decisions and execute each stage of a trade in a consistent way.
I would advise starting with a simulator since you can control the pace of the price movements. Once you can perform consistently at a controlled pace, you can slowly speed it up until you get to real-time trading. At that point, you can transition to a demo account to start trading in the live markets without having real money on the line.
Once you've collected a large enough sample size (remember, in the Masterclass I mentioned this is usually at least 400 trades) and you can see you've been consistent, you can then move into Phase 3.
Phase 3: Moving towards being consistently profitable
Objective: Use your trading data to direct any changes in your approach to lead you towards overall profitable performance
Account type: Demo account then live account
In Phase 3, you'll primarily be trading in the live markets. You should start with a demo account until you start to see profitable results over a prolonged period, then you can transition to a live trading account.
In this phase, you should be sticking to a set trading routine each day/week. The idea is to approach your trading as you would when you're consistently profitable. In other words, all aspects should be consistent - even your routine!
Your main task alongside your trading sessions is to go through your data and find aspects that can be filtered out, changed, or replaced to incrementally improve your performance. You should only make one change at a time so you can clearly track how it affects your performance.
It's unlikely that you'll find just one improvement that brings you into being profitable. Instead, it will be a process of small tweaks and adjustments over time that each slowly boosts your P&L until you eventually become profitable.
Remember, any changes you make should be practised repeatedly to ensure they become automated actions.
As you start to achieve profitable results, and have a big enough sample size to show they're dependable, you can transition to a live account. At that point, you should start with a small amount of capital, and slowly increase it as you get comfortable trading with real money.
Don't jump straight into a live account with all the capital you have. There are psychological impacts of trading with real money which we'll discuss in a future email, and these need to be managed appropriately.
Overall, this is a much more patient and deliberate approach than most new traders anticipate; but learning a skill properly takes time - there's no way to avoid that. And this plan is extremely effective (trust me, I've seen the results in many traders!)
As long as you follow the plan, you'll be on the right track for succeeding over the long-term. My philosophy is that it's better to take the patient approach to success than the hasty approach to failure.
As we progress through more lessons, you'll start to understand more about why this 3-phase approach is so effective and how it helps you avoid many of the issues traders can't seem to shake off (even later in their careers).