Updated: Jan 21
I know why you are here; you want to become a profitable trader. You want to be just like me (kidding, or not…). As you probably know by now, it’s hard as f*ck. But, it’s not impossible. I have made it and many others have. In this article you are going to learn how you can become a profitable trader. I will give you the exact path to profitability. This is going to be a huge article. I recommend taking it step by step and taking action. It’s essentially a free course.
Pay attention, let’s go.
PS: Don’t like reading? Click here for the video version (its free).
Below you find the picture of your path. This is a proven path that many profitable traders took. If you can follow this path without distracting yourself, you can become profitable as well.
In this article I will take you through it, step by step. Take notes. I know that when something is free, people tend to see it as less valuable. However, I truly believe this article is better than most paid courses out there.
If you are one of the chosen few to become profitable, then this is for you.
Introduction to profitability
What is profitable trading? It’s making money trading. Sounds simple but is hard. Making money in trading can be done in various different ways. The game is to find a way of making money that you like and that fits you and that is sustainable. Therefore, trading is a personal journey. Everyone has a different journey. However, there is a certain path that you can follow, that’s the path we discuss today.
During your journey of becoming a profitable trader you will learn a lot about yourself. I have learned way more about myself from trading than I did when going to school.
Your trading results don’t lie, your teachers do.
Trading really forces you to look in the mirror and to realize that you suck at it, which is okay.
Everyone sucks at some point, that’s what makes it fun and worthwhile. Because of this mirror, you can identify what you suck at, what you are good and what you like. This allows you to build a foundation for your profitable trading career.
What this article won’t give you:
The holy grail
A bigger d*ck
What this article will give you:
A clean path to profitability
Rude language (not for the faint-hearted)
Jokes aside, this article will give you a lot, but it won’t give you a profitable trading strategy. It’s up to you to develop it. This will give you the path to building that profitable trading strategy. This will give you the path to building your dream career. Ready?
1. Having realistic expectations
Oh man, basically everyone I speak to that wants to be a trader has wrong expectations. They expect naked girls on a beach, trading from a phone, cocktails and big cars. The truth? You, alone in a room, trading the markets and looking at spreadsheets.
Let’s start with dropping some more truth bombs:
It takes years to become profitable
Only a few make it
Social media is filled with fake traders
Drawdowns are real
Do you want it for the lifestyle that social media promotes, or do you want it because you like it? Really ask yourself this question. If your answer is that you want to have naked girls on the beach and big cars, stop reading and just quit. This is not for you. Without joking, be real and think about it. Nothing worse than working at something for years and then figuring out it isn’t for you.
Are you prepared to sacrifice time, energy, money and relationships? Because you will. I have. I have put in a lot of time to learn this. I have put in a lot of energy and money. And yes, I sometimes even suffered in terms of social connections with others. While everyone was having fun, I was studying the markets. Can you do this? Because it takes years to become profitable and only a few actually make it in the long term. Think about it please.
Social media is filled with losing c*nts. For real, the sh*t you see on social media is ridiculous. People trading 100 lots on mt4 from a beach. It’s insane. It’s all fake. Please don’t fall for it. The most profitable traders are the ones that don’t post pictures of fancy cars.
Now, hopefully you have the right expectations about trading. Let’s make it even better.
Below you see the backtested performance of my edge during the period of 2013-2019. This is in R gained, without compounding. As you can see, the graph looks great. It made 131R, which is 262% when risking 2% per trade, in 6 years without compounding. However, if we dive deeper into it, there were periods where the edge didn’t make money for months. Months! The longest drawdown was 51 trades. That means that after a new high in the equity curve, it took 51 trades to make a new high. This is the reality guys. This is real trading. The edge is highly profitable with low risk, but this is trading and no one will ever tell you this, because it doesn’t sell courses.
Please let this sink in: even if you are the best trader out there, you can still lose money for months in a row. This edge makes great returns, but it still loses money a few months per year.
Hopefully I didn’t scare you guys too much. Hopefully you are still here. Hopefully your expectations are real now. That makes us ready for the next step: edge development.
2. Edge development
To become a profitable trader, you essentially only need two things, these things are:
The ability to execute your edge without making mistakes
If you have these two things, you make money in the markets. If you are currently losing money in the markets, that’s because you suck at one of those things. What is it for you? Really be honest, because finding where the problem is allows you to fix the problem.
If you are fat, the problem comes from eating more calories than you burn. Because you know this, you can come up with a plan to fix that, by:
Simple. That’s how you fix it, that’s how you fix any problem. So, be honest and think about this for a second. Do you have an edge? If not, let’s fix that.
An edge means that you have a positive expectancy over the long run. This means you make money in the long run. An edge can be accomplished with a low win rate and a higher average R, or a higher win rate and a lower average R. It doesn’t matter, they both have advantages and disadvantages, but in terms of edge, they can both make money. There are 1000’s of ways to gain an edge in the markets.
Your job? Finding an edge that you fully understand, an edge that fits with your lifestyle, goals and personality. Why is this important? Because this makes sure that you can execute your edge with the least number of mistakes, and that’s exactly what you need. An edge can be mechanical, discretionary, systematic, automated or a combination of those. I trade a mechanical edge with a little discretion to increase performance.
Quick tip: if you are losing money, create an edge that is as mechanical as possible. This makes it easier to follow, easier to test and easier to improve. You can always add discretion later on. If you are losing money right now, find ways to make your strategy way more mechanical. That way, you can backtest it to confirm an edge.
3. Learning concepts
In order to develop an edge, you need to learn concepts. Concepts can be anything: supply & demand, support & resistance, SMC, Wyckoff, Elliot Wave, indicator-based trading, mean reversion, false breakouts etc. Again, the rule applies: learn different concepts, see what you like and stick with that. Ditch what you don’t like. This is how you find the right concepts to build your own profitable trading edge.
Also, don’t make it too complicated. Almost everyone I talk to makes their trading way too complicated. That sucks, because of this they make a lot of mistakes, they f*ck up backtesting and lose money. Learn a concept or two, build rules and test, that’s the name of the game.
I use Wyckoff & liquidity concepts in a mechanical way. Why two concepts? They go hand in hand. Both concepts are quite discretionary but I made them mechanical. This made it easier to backtest.
I wait for a range with a false breakout to absorb liquidity. Then I wait for the real breakout to enter on the momentum in the direction of that breakout. Simple stuff, but strong underlying concepts and easy to backtest. See the example below.
The green line marks a false breakout of the highs, the yellow box marks a real breakout of the lows. That triggers my short. Simple stuff. This is what I do all day: waiting for this to happen. Sounds boring, doesn’t it? That’s real trading. I’m not on a beach with naked girls around me, I’m in my home office looking at candles and Excel sheets.
However, I can plan my own days. I can go to the gym whenever I want, I can have a meal whenever I want. I can go for a walk whenever I want. I can go on holiday whenever I want. I can work from wherever I want. I do have more freedom than most people my age, which is awesome. That’s the reality of trading. A lot of hard work for more freedom and maybe someday those naked girls.
4. Test concepts
Alright, let’s recap. We have realistic expectations; we know how to become profitable (by having an edge) and you have found concepts that you like. The next phase is to build rules around the concepts and to test those rules. You don’t know if the concepts that you want to use in your own way, are profitable. Most people assume this because they learned it from someone that drives a Lamborghini. Quick tip? Be skeptical. Test everything you learn like a scientist:
Does this really work?
How does it work?
How well does it work?
When does it work?
Ask yourself these questions when you learn something new. It helps you to become better, it really does.
Let’s say you want to trade Wyckoff like me. Well, how are you going to backtest it? It’s subjective. What is an “accumulation range”? How do you define it? How do you define the spring? How do you define the boundaries of the range? Be very clear about this. Otherwise, you can’t backtest and your results will suffer. This is perhaps the hardest part of building your edge. It’s easy to learn concepts and backtest, but to go from concepts to a rule-based strategy that is testable and executable in live markets, that’s hard stuff. It can take weeks to come up with valid rules that you can test, and that’s totally fine.
Your homework: write down the concepts that you use. Write down how they work and when they work. Come up with clean rules that you can backtest on a simulator, without hindsight.
During the process you will usually figure out if your rules are clear. Usually in the beginning they won’t be, which is okay. Simply adjust the rules and start backtesting again until the rules are clear.
But Cas, what do I test?
You test if a Lamborghini appears when you are looking at your rules that you want to test. Just kidding. You want to test if your edge is profitable.
Take a look at the image below.
This is a part of my spreadsheet.
The things I tested? 3 different targets and some confluence factors. Simple stuff.
This is how I start backtesting:
Know your invalidation point
Find a few targets
Basic confluence factors
That’s it. This is how I start. Before I can backtest I need to know where my setup is wrong, because that’s where my stoploss goes. My question to you: do you know where your setup or trade idea is wrong? Most people place their stop at a place because of the pip amount. That’s a sh*t way to trade. Place your stop at the area where your trade idea is wrong. That’s the best thing to do.
Then, test different targets. I just tested 1R, 2R and 3R targets. Then I want to see how often they hit, which is your winrate. Then, I want to see the performance in R. Simple stuff.
Later on, you can backtest MAE, MFE etc. But start small and easy. Ideas will pop up to improve. Note them down because these can be basic confluence factors that you can test later on to improve performance. Always test your ideas, even if they sound like the best thing since Lambo’s and cocktails.
Don’t stop with this phase until you have found a profitable trading edge that you like and that can be easily executed. Are you satisfied with the edge? Are you satisfied with the numbers? Are you satisfied with the way of trading? Good, then it’s time for the next phase.
5. Demo trading
By now you have a profitable trading edge with underlying concepts that work and that you like. You are better than most traders. Most people skip these steps. Taking action is the name of the game.
Now, what’s next? Demo trading. Trade the strategy on demo for a while. You will probably notice that this is different. It’s different to trade your strategy on a demo account. That’s fine. You will make mistakes in this phase and there is really no need to waste money on this.
The goal of this phase?
Noting down problems
Getting a feel for your edge in the live markets
This is the goal of demo trading. Note down all the issues you notice with executing this strategy in the live markets. Fix all these problems before going live. Also, get a feel for the strategy and how it performs in the live markets. How do you feel while trading it? Good? Anxious? Note it down and fix your stuff before wasting money in the live markets.
6. Live trading
Jesus Christ, you made it. You followed all the steps and you are now ready to go live. Time to lose real money. Kidding. If you did everything the right way you should now be able to execute your profitable strategy in the live markets, with real capital. What will be different now? Your emotions. You will be risking real money. However, if you took all the steps, you should have a sh*tload of confidence in your strategy. This confidence is needed to stick to your plan during drawdowns. If you have skipped backtesting, do that first or learn the hard way that lack of confidence in your trading will cause psychological issues.
How to approach this phase?
Start a small account
Get a journal
This is what you need to do in this phase. Open a small account with a good broker. Trade your strategy and journal every trade. Note down mistakes you make. Note down your emotions and fix your problems asap. Find ways to keep improving your trading.
How to find a good broker? Click here.
More info about how to journal? Click here.
During live trading everything that you have learned and done so far will be tested. If you use concepts that you don’t like, it will come out in live trading. If you didn’t backtest well enough, it will come out in live trading. It’s essentially a mirror. You have to be aware of that and you have to take action when you notice something just isn’t working. The earlier you take action, the earlier you become a profitable trader. Most people get stuck because they aren’t aware of their mistakes. They keep doing the same sh*t over and over again and wonder why it smells so bad every time. The key is to become aware of what you are doing, to notice what works well and what doesn’t work well and then to come up with a plan to fix the problems. A journal helps you with becoming aware and then with fixing your issues.
7. Building a career
If you are profitable on your small live account and everything works out according to plan, then you can start thinking about building a career. Please be sure you are profitable. Follow the following points to be sure:
You have traded live for at least 6 months
Your results match your backtested results
You have fixed your psychological issues
You have a solid routine of journaling and improving
If you have mastered those steps, then it’s time to build your career. If you haven’t mastered those steps, work on them first or they will come and bite you in your ass.
How to go about building a career? There are multiple ways:
Trading for a prop firm
Trading for investors
Trading your own capital