Stages Of A Trader - Can you identify which stage you are in?

The following framework was conceptualized by a trader and an author popularly known as “Bo Yoder”

There are in total 6 stages of a trader and here’s a brief introduction of each stage. You must read about this in detail in this article

Here’s a excerpt from the article covering briefly about each stage:

Stage 1: The Mystification Stage

This is where the neophyte trader begins. He has little or no understanding of market structure. He has no concept of the interrelationship among markets, much less between markets and the economy. Price charts are a meaningless mish-mash of colored lines and squiggles that look more like a painting from the MOMA than anything that contains information. Anyone who can make even a guess about price direction based on this tangle must be using black magic, or voodoo.

Stage 2 : The Hot Pot Stage

You scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon which pops up regularly and seems to “work” pretty well. You focus on this pattern. You begin to find more and more instances of it and all of them work! Your confidence in the pattern grows and you decide to take it the very next time it appears. You take it, and almost immediately your stop is hit, and you’re underwater for the total amount of your stop loss.

So you back off and study this pattern further. And the very next time it appears, it works. And again. And yet again. So you decide to try again. And you take the full hit on your stop loss.

Stage 3 : The Cynical Skepticism Stage

You’ve studied so hard and put so much effort into your trading and this universal failure in the patterns only when you take them causes you to feel betrayed by the market, the books and materials and gurus you tried to learn from. Everybody claims their ideas lead to profitability, but every time you take a trade, it’s a loser, even though the setups all worked perfectly before you played them. And since one of the most painful experiences is to fail when success looks easy, this embarrassment is transformed into anger: anger at the gurus, anger at the vendors, anger at the writers, the seminars, the courses, the brokers, the market makers, the specialists, the “manipulators”. What’s the point in trying to analyze and improve your own trading when there are so many dark forces out to get you?

This excuse-driven blame game is a dead-end viewpoint, and explains a lot of what you find on message boards. Those who can’t pull themselves out of it will quit.

Stage Four: The Squiggle Trader Stage

If you don’t quit, you’ll move into the “squiggle trader” phase. Since you failed with patterns and so on, you figure there’s some “secret weapon”, a “holy grail” that’s known to the select few, something that will help you filter out all those bad trades. Once you find this magical key, your profits will explode and you’ll achieve every dream you ever had.

You begin an obsessive study of every method and every indicator that is new to you. You buy every book, attend every course, sign up for every newsletter and advisory service, register for every trading website and every chat room. You buy more elaborate software. You buy off-the-shelf systems. You spend whatever it takes to buy success.

Unfortunately, you stack so much onto your charts that you become paralyzed. With so many inputs, you can’t make a decision, particularly since they rarely agree. So you focus on those which agree with the direction of the trade you’ve taken (or, if you’re the fearful sort, you look only for those which will prove to you how much of a loser you think you are).

Stage Five: The Inwardly-Bound Stage

The trader who is able to pry himself out of Stage Four uses his experiences there productively. The trader learns, as stated earlier, what styles, techniques, tactics are popular. But instead of focusing entirely on what’s “out there”, he begins to ask himself some questions:

What exactly does he want? What is he trying to accomplish?

What sort of trading makes the most sense to him? Long or intermediate term trading? Short-term trading? Day-trading? Trend-trading? Scalping? Which is most comfortable?

What instrument – futures, stocks, ETFs, bonds, options – provides the range and volatility he requires but is not outside his risk tolerance? Did he learn anything at all about indicators in Stage Four that he might be able to use?

And so he “auditions” all of this in order to determine what suits him, taking all that he has learned so far and experimenting with it…

He begins to incorporate the “scientific method” into his efforts in order to develop a trading plan, including risk management and trade management. He learns the value of curiosity, of detached interest, of persistence and perseverance, of taking bits and pieces from here and there in order to fashion a trading plan and strategy that are uniquely his, one in which he has complete confidence because he has tested it thoroughly and knows from his own experience that it is consistently profitable.

Stage Six: Mastery

At this level, the trader achieves an almost Zen-like trading state. Planning, analysis, research are the focus of his time and his effort. When the trading day opens, he’s ready for it. He’s calm, he’s relaxed, he’s centered.

Trading becomes effortless. He is thoroughly familiar with his plan. He knows exactly what he will do in any given situation, even if the doing means exiting immediately upon a completely unexpected development. He understands the inevitability of loss and accepts it as a natural part of the business of trading. No one can hurt him because he’s protected by his rules and his discipline.

He is sensitive to and in tune with the ebb and flow of market behavior and the natural actions and reactions to it that his research has taught him will optimize his edge*. He is “available”. He doesn’t have to know what the market will do next because he knows how he will react to anything the market does and is confident in his ability to react correctly.

He understands and practices “active inaction”, knowing exactly what it is he wants, exactly what it is he’s looking for, and waiting, patiently, for exactly the right opportunity. If and when that opportunity presents itself, he acts decisively and without hesitation, then waits, patiently, again, for the next opportunity.

He does not convince himself that he is right. He watches price movement and draws his conclusions. When market behavior changes, so do his tactics. He acknowledges that market movement is the ultimate truth. He doesn’t try to outsmart or outguess it.

Irrespective of the task, especially while trading the markets, Consciously recognizing where we stand and working on improving is one of the best ways to grow in my view.

Can you identify which stage you are in?

  • Stage One: The Mystification Stage
  • Stage Two: The Hot Pot Stage
  • Stage Three: The Cynical Skepticism Stage
  • Stage Four: The Squiggle Trader Stage
  • Stage Five: The Inwardly-Bound Stage
  • Stage Six: Mastery

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Original post:

Would love to hear your thoughts on the ways you have improved as a trader so that it helps understand who are willing to start or have just started.


First 2 stages are pretty terrible, especially because of a lot of bad advice and bad expectations too - since there is a lot of noise. Add to the the result of emotions due to pnl changes and lack of understanding of how markets work.

I skipped 3/4. For a long time, i was in a state of trying to find something that works and traded infrequently with small capital, yet had an almost irrational belief that i was close.

I think you really need a good source to study from ( too much of available info is useless or irrelevant for your trading) and then to be ready to become flexible and adapt to get to stage 5 rather than follow something blindly.
I do identify with last para of stage five. It took couple of years of study from a good source and then to finally stop and test things yourself. Once you have a good enough knowledge base, and after years of struggling and trying to manually backtest with lots of errors and small sample sizes, it was something else to backtest simple things in code and see how markets actually work over a decade of data. There is no substitute to getting answers from market itself. But you also have to ask the right questions perhaps.

Not sure about stage six, even once all is done, markets are uncertain and can change and we can have looong periods where doing the right thing gets punished. So its a continuous process, filled with uncertainty that you try to manage by compounding capital and diversifying to reduce risk. Maybe masterful discretionary traders can reach this.

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Whatever you may call it, you’re only scrambling till you get profitable (trying as many things as possible). The real work only starts after you find few things that work and make money.

I personally put way more work in to make my profitable systems to make them resilient to various market conditions.

Getting a better grip on the math, fine tuning parameters on my systems to reduce drawdowns & bringing down costs.

Improving order execution.

Stage 5 …

After 1 year of spending time in the market wilderness I read about the Richard Dennis’s Turtle Trading experiment. With that in mind and after a bit of experimentation with Amibroker I figured out that systematic automation is the way to go. Not that I learned a lot about the market. But I realised that having a process and sticking with it is important for higher odds of favorable outcome. Since then once the process is well baked I let the algo to show its level 6 skills. So really algo is the master driver mostly. I just made the car.

I apply only what i know, if market forms that condition i take entry otherwise i learn. In any point, if i feel, i square off position, it doesn’t need to hit my sl nor target. i think one who understand the direction of trend at different levels on chart, he will earn even if price goes opposite, i have seen many times in options. if trader starts feeling the price and the chart, it helps a lot.