Starting At Zero: How To Start Small and Snowball Your Way To Success

snowball

What would I do if I had to start all over again?

I was thinking about this question after reviewing my progress and the truth is that there’s plenty that I would change and do differently. Unfortunately I can’t rewind the clock but hopefully some of the things that I’ll be sharing in this post will help you to cut weeks, months or even years off your learning curve (this also applies to profitable traders).

My Biggest Mistake

I made many mistakes when I first started trading and I’m not talking about losing trades – there were flaws in my trading process and how I was aligning myself with my goals. One of the biggest mistakes that I made was not finding a trading mentor and I think this probably added months to my learning curve. I had to learn everything by trial and error when someone could have just said “Hey, that probably won’t work because X”. Instead, I wasted valuable time trying something that probably every profitable trader knew was wrong. Even now I as sit here writing this post I’m thinking to myself “How could I have been so stupid?”. If only there was someone to steer me in the right direction instead of wandering into blind alleys by myself.

It should be noted though that when I mention a trading mentor, I’m not talking about service providers or live trading rooms. Those are another waste of time that I won’t get into in this post. A real trading mentor should be someone who trades with similar trading concepts and is making a living from actually trading. Ideally, you shouldn’t have to pay a fee to this person either because in my opinion this compromises the relationship. This person may not exist but it would be nice if they were around.

Fortunately, It’s possible to become consistently profitable without a mentor and if I can do it – you can too.

Learning to Fly

It’s quite common for trading to compared to learning to become a surgeon or a pilot – you can’t expect to turn up and be able to perform a hip surgery just as you can’t decide to become a pilot and be let loose on an commercial aircraft yet new traders open an account and expect to make profitable trades. We all know that they should be starting small and building their account up slowly but one thing that’s often missing from the books I’ve read on the subject is that no one explains how to do this.

Regarding this subject and based on my own experience, there’s one thing that will shorten your learning curve that I’ve not seen written about anywhere else:

Risk One to Make One

I had my setups figured out pretty quickly and quite honestly, developing entry and exit criteria was not a major problem. Partly because trading literature is pretty good at giving you clues about the many ways to trade. On the other hand, trade management caused the majority of my stalling. I tried to test too many things and didn’t have a proper way to quantify risk.

Trade management starts at 1:1 risk reward. If you are not profitable at 1:1 risk reward then it’s unlikely you will be profitable with any other method. This includes gimmicks such as averaging down, partial closes and using other risk reward ratios – Someone that trades successfully at 1:2 with a 40% win rate will have a win rate above 50% at 1:1 which will also be profitable.

While you are trading with 1:1 risk reward you should also be recording other trade management methods and risk reward ratios on the same trades. These alternative methods will provide vital information on ways you can maximise your returns. After you are profitable at trading 1:1, you can begin trading other trade management methods and risk reward ratios based on the information you have already collected.

If I could start again I would have been trading with 1:1 and recording all other alternatives such as partial closes, 2R and 3R from the beginning so that I could choose the best one after gathering meaningful data instead of jumping from one to another every week. This would have saved a lot of time. It should also be mentioned that trading at flat risk reward was surprisingly profitable so don’t be put off by it.

Another advantage of starting with 1:1 is that I would have built up trading confidence and learned how to manage trades the correct way.  I would not have missed so many trades through poor execution and made as many beginner mistakes such as closing out positions early due to fear. With a 1:1 strategy you just let your orders do the work for you. There’s not need to move stops to breakeven, the only outcomes are a winning trade for 1R or a losing trade for 1R. Again, after you have gathered enough data, you can switch to partial closes or a higher risk reward if you find those outcomes outperform 1:1 but you won’t know if it will beforehand and starting with anything other than 1:1 such as 2R or moving stops to breakeven without the stats to back it up will only make things more complex, increase trading stress and the chances of mistakes.

Final Words

In summary, there are many ways to shorten the learning curve for new traders. One of the smartest moves you can make is to find a legit trading mentor – someone who will steer you in the right direction and preferably with no interest in syphoning money away from you. Failing this, every new trader should be starting small and building their way up. The best way to do this is to trade with a 1:1 risk reward ratio. The reason for this is that it is the simplest way to learn the right way to trade. It builds trading confidence and removes the need to manage trades which you will most likely mess up as an inexperienced trader. With a 1:1 risk reward ratio, you will be building up quality data on your trading while also being able to profit in the meantime with the highest possible win rate. After you have mastered 1:1 and have gathered enough information on your trading, you can start experimenting with your other trade management styles.

I’m sure there are a lot of things traders wish they would have done differently if they could start again and while I do have some regrets I am happy that I made it to where I am now and can just focus on maximising returns  – even if I could have done it much earlier.

Comments

  1. Richard Honour says:

    Hi Sam
    The problem also with losing is that it takes from you the very tool you need to continue,” cash”, and that can be responsible for many pscycologoical issues, desperation sets in, that in turn can cloud your judgement,at best it can seem like you are running just to stand still, the whole situation can then become a grind, it’s at that point the only action is to focus out and see the wider picture, it helped me when I was in that situation some years ago.

    • I agree that focusing on the long term and not being results orientated helps a lot. I would also add that traders should know the probability of consecutive losing trades based on their win rate so that they know what to expect and do not panic. In regards to handling drawdowns, trade size relative to account balance helps whether that’s 2% risk or whatever amount based on trader risk tolerance.

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