Among the traders that I’ve communicated with over the years, the ones that struggle the most tend to be intermediate-level traders.

You see, although they are well-acquainted with the trading basics, their account typically hovers between a small loss and break even.

In private, they often admit that they feel like stuck and unable to progress.

If you fit this description, this post is for you.

Stages of Profit

Now the first thing you should understand is this:

retail trader profit path

This chart describes the approximate path of profit for most retail traders.

As beginners (starting from the left of the chart), people tend to be ignorant about the risks involved with trading.

Maybe they came into it with a gambler’s mentality. Maybe they try to get rich quickly. Or maybe they don’t bother to learn about how margin and leverage work.

Regardless, beginner traders have very little understanding of what it takes to succeed, and often take trades that are too large for their account.

Thus, they tend to experience large profits or large losses (often both).

beginner trader growth

Assuming they don’t quit trading at this stage, these traders will move on to gain more experience in the market. Eventually, they come to realize that their trading results have up until this point, been largely based on luck.

They discover that they’ve been gambling, and quickly wise up to the real dangers of the market. This tends to also be the point where they realize how little they know about what it takes to succeed in trading.

Thus, they decide to cut down on risk by reducing their trading lot size.

They think, “once I find a trading method that works, I’ll increase my lot size and start making some real money”.

intermediate trader growth

This is actually the smart thing to do. By cutting down their trading lot size, these traders continue to gain valuable market experience without risking a lot of money in the process.

The problem with this stage though, is that it’s by far the longest.

It’s actually something more like this:

trading grind

This is the stage of the process I call The Grind.

What’s The Grind?

The Grind is the metaphorical brick wall that separates the wannabes from the committed.

It’s also the period when the trader begins to realize that conventional trading wisdom doesn’t work.

He slowly unlearns what he had been taught about trading, and starts seeing the market with new eyes. For the first time, he starts thinking for himself.

Instead of following the generic advice he reads about online, he goes through an arduous process of discovery and carves out a niche for himself in the market.

But, unfortunately, not everyone comes to this realization. For many intermediate-level traders, the feeling of being stuck leads them to think they are at a dead end.

This is why many will quit at this stage. These traders equate progress with the amount of money they’re making (i.e. very little), so they talk themselves into believing that successful trading is either not possible, or that it’s just not possible for them.

But the truth of the matter is, they just don’t want it badly enough.

You have to be passionate… because it’s so hard, that if you’re not passionate, any rational person would give up. It’s really hard. And you have to do it over a sustained period of time. So if you don’t love it… you’re gonna give up. And that’s what happens to most people actually.” – Steve Jobs

Thus, The Grind really refers to two things. First, it refers to the tedious, everyday grind that traders have to go through to eventually become consistent performers. And second, it refers to a grinding machine that sucks in the opportunity seekers and spits them out as minced meat.

The Payoff

the payoff

If the trader hangs in there and continues to learn from mistakes, he eventually arrives at the promised land. This is the payoff period that he’d been working so hard for.

After defining his edge in the market (during The Grind), he is now confident of his ability to keep his losses smaller than his profits. From now on, it’s only a matter of how fast he wants to grow, and how capable he is of handling increasing levels of pressure.

During the last stages of The Grind, he might be growing a $10,000 account at 2 – 3% a month. But now, he faces the challenge maintaining this performance on a $20,000, $50,000, $100,000 account or larger.

This is more difficult than it sounds, because as the stakes get higher, the fear of losing gets disproportionately more intense.

After all, the feeling of losing $10 in 15 minutes is very different from the feeling of losing $1,000 in the same amount of time.

So in truth, the promised land isn’t filled with rainbows and marshmallows. It’s filled with bigger traps and pitfalls that are by degrees-of-magnitude more painful than anything the trader has experienced so far. So in a way, it’s more challenging than The Grind.

But this is also when the financial rewards start to surface. This is when the trader starts being able to afford the nicer things in life.

But make no mistake, this is not a gift from the gods. To get to this stage, the trader had toiled for years with zero financial reward, and without knowing if he’d ever make it.

The Growth Cap

Eventually, the trader grows his capital to a level beyond which he cannot emotionally handle.

For one of my early mentors, that level was $5 million. He found that whenever his trading fund grew larger than that, the emotional toll becomes too much. So he just sticks to $5 million and withdraws his profits periodically.

So… is there another level beyond this “growth cap”? Is it possible to train oneself to trade a $1,000,000 account as unemotionally as a $1,000 account?

I don’t know, I’m still figuring that one out.

Anyway.

Back To The Point

The purpose of this post is tell you that you’re feeling stuck because you’re equating “progress” with “a growing account”.

But that’s the wrong way to look at it because the relationship between “profits” and “understanding” isn’t linear.

Look again at the chart:

trader profit growth

Notice that as your understanding of trading grows (along the horizontal axis), your trading profits (the blue line) remains flat and doesn’t grow by much, if at all.

It is only after you’ve reached a “critical mass” in your understanding that leads to an explosion in your trading profits (the payoff). Before this point, the only thing that grows is the intangible knowledge and experience that you’re accumulating in your head.

So rest assured… as long as you are continuously learning from mistakes, you ARE heading in the right direction, even if it isn’t obvious from your immediate trading results.

Just keep at it, don’t make stupid mistakes (like blow up), and you’ll get there.

Or, if you’re rational about it, you could just quit trading altogether.