Steps to Becoming a Profitable Trader as Quickly and Efficiently as Possible - Trade That Swing (2024)

This is a roadmap to becoming a profitable trader. Follow these steps to avoid wasting time and bouncing around from idea to idea. We start with a basic strategy idea we like, then build off it. We MAKE it profitable by following the steps outlined.

There are loads of successful traders and they each trade slightly differently than anyone else. What does that tell you? It means you can take an idea, make it your own (matching it with who you are and how you want to trade), and make it profitable. Build something you believe in.

Your idea can be based on my strategy ideas, someone else’s, or it can be an idea you came up with it.

Either way, here’s how to turn it into profits quickly and efficiently.

1. Focus on One Idea or Strategy

Focus on one specific idea.

An idea is not “price action” or “technical analysis”. That is too broad.

But you could start with the idea of day trading an 8 and 21-period moving average crossover.

Or MACD signal crossovers on a 1-minute chart.

Or the rounded top or bottom or pattern, or triangles, or Keltner channel bounces off the center line in strong trends.

Basically, you need an idea and a time frame (1-minute chart, daily chart, etc).

I would also include when you will be taking/placing trades (time of day) to further enhance consistency.

It doesn’t need to be perfect (yet…and it never will be anyway). Just start with an idea YOU like.

Then you’re going to improve it using the steps below.

That’s the secret sauce. We dig in and become an expert in that idea.

It takes the average trader a year or more just to get proficient at trading one bread-and-butter strategy, focusing all their attention on it. It’s no wonder people spend YEARS trying all sorts of different things but never getting any good at them. If you try to learn 5 strategies at once, you likely just expanded the time it takes to be successful into multiple years. If you try to learn everything about technical analysis, you will spend years.

Dedicate at least 6 months to ONE idea that interests you. As long as it takes to get profitable with it.

This doesn’t mean you mindlessly follow a strategy that isn’t working! The exact opposite. In the steps below you will learn how to make ideas profitable. So your strategy is not static. You’re refining it and making it better.

This stage is research. It is about picking an idea you like (from someone else) or looking through historical charts and trying things out for yourself to come up with an idea. No live trading without going through the steps below.

2. Define the Strategy

Since you have your idea, you already know the basic concept of the strategy. If you don’t have a strategy yet, that’s where a bit of research comes in: finding something you like the idea of. There are loads of free strategy articles on this site, in the courses offered, and from other sources such as books, Youtube, etc.

Whatever strategy you decide on, it needs to include these key components:

• A trade setup. The trade setup is what needs to happen for us to even consider a trade. It could be a specific chart pattern, moving average crossover, price action signal, etc.
• Where, when, and why we enter
  • A trade trigger is a precise event that tells us to get into the trade. When the “trigger” event occurs, it turns a possible trade setup into an actual trade.
• Where, when, and why we exit profitable trades
• Where, when, and why we exit losing trades
• If and how we trail a stop loss

We can always refine the basics of a strategy. Actually, that’s the whole point of this roadmap: to take a strategy and make it profitable for ourselves. That means improving it over time as we see better ways of doing things.

But for now, define the basic criteria for the strategy (above) and make sure you can identify the trade setups you’ll be trading. This is the strategy you’re going to give your full attention to.

When you start trading it, you may notice some holes or questions that pop up. Note them, and work on filling in those holes by studying your charts for the answer.

Since you’re figuring out the strategy at this stage, all trading should be in a demo account or seeing how trades would have played out on historical charts (backtesting). No live trading until you’ve gone through the steps below.

I lay out my Day Trading rules and strategies for trading the forex in the EURUSD Day Trading Course.

3. Establish Risk Management Rules

You have your strategy defined. The strategy is how we trade the market.

But we also need to manage our account while doing that. No strategy wins all the time, so we need to control our risk.

There are a number of ways that I control risk:

• A stop loss on each trade. Not all strategy trades will be winners, so we need to get out when the trade doesn’t go our way. You should have defined where the stop loss is placed in Step 2.
• Define the % of the account we can risk on a single trade. I use 1%. When starting out you may wish to start at 0.2% or 0.5%, for example.
• Once we know how much of our account we’re willing to risk, and our stop loss, we can calculate our position size.
• Establish loss limits: For day trading, I don’t let myself lose more than 3% per day. You may choose a different number. If I lose that amount, I’m done for the day. You may also choose to limit how much you can lose in a week before stopping until the next week. Swing traders may wish to do the same thing, limiting how much they can lose in a week or a month.
• Establish rules around news/earnings. When I’m day trading, I don’t hold positions through high-impact news events. When I’m swing trading stocks, I don’t hold trades through earnings. These events can cause sharp price moves, resulting in losses much larger than expected (stop loss gets us out at a worse-than-expected price). Therefore, I exit my trades prior to these events, regardless of the strategy. You may wish to incorporate something similar, if applicable.

Since you’re figuring out the strategy at this stage, all trading should be in a demo account or seeing how trades would have played out on historical charts (backtesting). No live trading until you’ve gone through the steps below.

4. Find the Conditions When the Strategy Works and When It Doesn’t

The simplest way to improve is to notice the conditions when a strategy works and when it doesn’t.

When people learn of a strategy, they’re often so keen to implement it that any time they see a trade setup they take it.

Most strategies don’t work well in all market conditions. Many losing trades could be avoided by simply avoiding poor conditions for that strategy.

Whether I’m day trading or swing trading, I need lots of movement, where the price is moving at least enough to reach my profit targets with relative ease. If the price is chopping around in a small range, that is not the environment for me. I need to wait until the movement gets bigger. Only AFTER movement expands can I start implementing my strategy again.

I lay out when I trade and when I don’t in Trading Rules for When to Trade.

So in addition to the strategy parameters in Step 2 and 3, also add in:

• When and why you won’t take the entry signals the strategy gives you!

This step can take some time to figure out.

Review YOUR own trades and notice when you tend to lose and win. Are there conditions that are more common with your losers? Are there conditions that are more common with your winners?

If you’re trading a strategy that capitalizes on trends, but most of your losses occur in choppy or ranging price action, you know what you have to watch out for! Study the chart and see how you can identify these types of areas before they cause too much damage, and once you have identified them, you can avoid this type of price action with your strategy.

The flip side of this is defining what conditions work well for the strategy, and when those conditions are ideal, making sure to take the strategy entry signals.

I lay out my Swing Trading rules and strategies for trading the stocks in the Complete Method Stock Swing Trading Course.

After you have gone through steps 1 to 4 in a demo account or backtesting, you begin trading a live account if your strategy idea shows promise and the losses are acceptable. Or you can stay in demo for a while longer.

When you switch to live, start with a smaller position size than what you laid out in Step 3. Just for now. Adjust to live trading with a small position size. If it goes well, then slowly increase position size until you are risking the amount on each trade that you laid out in Step 3.

5. Refine Steps 2 to 4

You’ve defined your strategy, risk management rules, and the conditions you will and won’t trade in.

At this point, you can start real-time testing either in a demo account or a live account.

The real-time trading of the strategy will likely reveal things that could be improved.

Don’t change the whole strategy, but you may notice that you could make more money by avoiding certain types of trades (possibly related to market condition, near news, or some other specific conditions that affects how the strategy performs).

Your stop loss could potentially be smaller if the price rarely gets near it. Or if you’re constantly getting stopped out before the move you’re trying to capture happens, look at how you could improve your entry timing? You’re a bit early, how could you enter slightly later and still get in for the big move?

Possibly you’re exiting trades too early. On average, if you could make much more than you’re currently making, how can you squeeze more out of your trades? Higher reward:risk? Trailing stop loss instead of target?

Study your trades and charts for the answer.

Your trades and the price action around them are all right there to be learned from.

All the steps above require “Practice”

One of the best ways to practice is through repetition: find trade setups, execute the trades, and then manage them well.

And one of the best ways to practice that I have found is using a simulator where we can practice day or night, even on weekends, replaying and trading prior trading sessions as if they were live. You can rapidly increase your progress and proficiency because you can work on what you need to practice over and over again, without waiting for the next trading day to do it.

See how this trading practice software works.

6. Work on Mistakes & Trading Psychology

By this point, your strategy is working well. It makes money…if you could only follow it.

The above steps work on making sure the strategy works. But a great strategy means nothing if we, personally, can’t implement it.

Our focus now turns inward.

When you are trading, note when you make a mistake. Better yet, keep a journal with your trading mistakes, or email yourself every time you make a mistake.

How well you trade your strategy is called efficiency. If you follow your strategy perfectly, you’re at 100% efficiency. If your results vary drastically from what the strategy produces (if traded per the rules) then your efficiency is very low.

We typically won’t be able to trade our strategy perfectly all the time, but we want to be near 80%. You could also think of it this way: if trading the strategy perfectly produced 30% in profits this month, you should have made 24% or more. 30% is ideal. 20% or lower, in this case, means there’s work to be done as you’re leaving a lot on the table due to mistakes.

Compare your results to the strategy results. If the strategy should have made 90%, compare your results to that. if the strategy made 8%, compare your results to that.

Correcting mistakes is the easiest way to make more money. You have already done the work! The strategy works! You just need to get better at following it. Reducing mistakes does that.

Part of working on mistakes is also working on our psychology.

Sometimes we know what we’re supposed to do but our impulsive, anxious, arrogant, perfectionist (etc, etc) aspects get in the way.

I don’t try to shut these things out. I work with them to turn them into strengths or minimize their destructive tendencies.

A Parts Negotiation is one way to accomplish this. This process quiets the mental voices or impulses that are causing the trading mistakes.

I also really like Identity Work. This process is about changing how we view ourselves and our trading, so we don’t need “willpower” (which often fails us when we need it most) to overcome our struggles.

While I’m trading, I also like to talk through the price action that’s occurring. This includes what needs to happen for me to get into a trade, and what I’ll do once I’m in a trade. Basically, I’m thinking multiple moves ahead, so no matter what the market does I feel prepared with what I’ll do. I call this Scenario Planning and it can be very useful for helping to mitigate mistakes.

This is your strategy, your trading, and your money, so use what works for YOU. You’re becoming the expert in your own method, which means you get to decide what tools stay (help) or go (don’t help you)

6A – Own your Trading, Let Yourself Fly, Cut the Apron Strings

Related to psychology, I would also add that great traders “let themselves fly”. They cut the apron strings.

By that I mean, when we learn we often have other people’s voices in our heads telling us what to do.

As children, we grow up with everyone else’s ideas and beliefs in our heads, but as we get older we learn to filter some of that out and make way for our own voice in our head, beliefs we choose, ideas we like, and we do what we want to do. Those other voices are still there, but we have the choice to push them away and make our own decisions about how we think or what we do.

Trading is the same way. As you trade, and even once you have a great strategy, you may still be tethered by someone else’s voice.

“This book said do this.” “Cory said do that.” It can cause little conflicts in our trading, hesitation, or over-trading. Too many voices.

That knowledge base helps us build our strategies and gain our edge. But to fully execute that edge you need your own voice to become more dominant. That’s what “making a strategy your own” is. It’s now yours, you’re the voice calling the shots, not a book or a teacher.

It is the tipping point where we say “I got this” and we plan what to do instead of thinking about what someone else would do. We are free. We will still follow our rules, but they are now our own rules, as we make them, not someone else’s.

An example. I took kung-fu for many years. Upon learning a new routine/form, my movements were very slow, choppy. They don’t flow…because I’m thinking about every move. I’m getting corrected and then thinking about the corrections and I have my Shifu’s instructions in my head. This process is required for learning the movements.

But there comes a point where I need to say “Ok, I know what I am doing…let’s go with it.” You push the other voices out of your head and trust your own training. I let myself fly. You’ll make mistakes, but your training told you where should be and what you should be doing. You’re now just working on execution at full speed (or working up to full speed). Without letting yourself go the movements will be jagged and inhibited, non-functional.

I started day trading right out of university. I had no voices in my head about trading. The firm I worked at told me to figure it out..and so I did. I found ways to make money. I made lots of it.

Then I took the Chartered Market Technician program. My profits plummeted. I now had so many voices in my head telling me what to do. I lost my own voice. It took time to find my voice again. To realize that all the strategies and indicators I learned about were someone else’s tools. I didn’t need to use them if I didn’t want to, and I certainly didn’t need their voice in my head telling me what to do.

Most of those voices didn’t even trade the same market or time frame as me. They were managing other people’s money and making commissions or fees. Or they were analysts or researchers who didn’t trade themselves. They didn’t have to trade for a living. I do, every day. Most of the ideas weren’t trustworthy enough to bet my livelihood on. They may have worked for them, but the only person hitting my buy-and-sell keys is me.

So I cut the apron strings. I took the things I learned that were useful to me, and I left the rest. “This is my money, and I will trade it exactly how I want to. This is my life, I will trade in a way that fits it.” No conflicts, just me trading fully how I want to trade….but based on solid information as determined in steps 1-5.

All those other voices got me to that point. They helped shape my ideas and strategies. Other people’s voices can get you to profitability. But letting yourself fly and listening to your own voice pushes you into greatness (YOUR version of greatness), leading a life and trading the style you want.

When you have learned what you can from me, get me out of your head. It’s time for you to take over the role of that voice.

You tell me whether the trade you took was good or not, based on your approach, instead of asking me if it was good (IF you are at this stage…at earlier stages it’s fine to ask for guidance). I don’t ask anyone if a trade was good but myself. That’s owning your trading. You are the expert in how you trade. No one else.

Follow your own rules, be free of other’s.

Steps to Becoming a Profitable Trader – Tying it Together

Keep it simple and focused on one trading idea.

Get better and better at that idea. Keep refining and building your confidence in the method.

We gain confidence by seeing something work and being able to implement it. And that’s what all these steps are about.

Don’t be concerned about being an expert in the general area of “trading” or “technical analysis”. Generalists generally don’t make money.

Zero in, and become an expert at “trading moving average crossovers in high momentum stocks on the 5-minute chart in the first hour of the trading day.” That’s your area of expertise where you have found ways to make money. Or whatever your idea is.

Over time, you can add additional strategies, by going through the same process with them.

I trade many different strategies very well, but I started out developing one at a time and getting good at it. Learn one first, that’s your bread and butter. Once you have that, then start developing your other ideas.

Many new traders make the mistake of looking at experienced traders and thinking “They know everything…I need to know everything”. It can look like that in hindsight, but most successful traders started out with one idea and build on it. If they started out with lots of ideas and tried to refine all of them, then it likely took them a long time to be successful.

If you look closely, what looks like many different strategies is often branches of a single idea or concept.

With this type of zeroing-in approach, it is possible to be successful within six to 12 months of starting the process. Deviate from this process and the journey could take years. There are people who have been trying to trade for 20 years, and have never had success because they keep changing what they’re doing. As long as that continues, success will continue to elude them.

At some point, you need to stick with an idea long enough to get good at it.

If you want to trade for a living, zero in and become an expert in YOUR idea. Do that, and you’ll have developed a process that you can rely on for life. Even if the strategy stops working, you’ll know how to develop a new idea. And having done it before, you’ll likely be able to develop new profitable strategies very quickly. This ability is your competitive advantage.

Need a reliable process for day trading stocks? I lay it out in the Price Action Stock Day Trading Course.
It guides you through day trading, and teaches one strategy at a time. Practice the first strategy and start making money.

No need to read endless books. Learn this strategy, practice it, and start making money. Then continue on to learn the other two strategies to further enhance returns.

The course utilizes the concepts discussed in this article.

By Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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