17 Steps to Becoming a Great Trader

October 17, 2018

A note to readers: While much of this article’s content is timeless, it is from a past publication and may contain outdated information, missing links or images.

Did you know that there are critical steps that you need follow to become a very successful trader?

Through my modeling work with top traders I’ve discovered 17 key steps that will ensure your consistent success as a trader.

So let’s take a look at these steps one by one, with the first seven steps involving the development of a sound business plan.

First, assess your beliefs about trading and about yourself.

Although it’s difficult to grasp, did you know that nobody actually trades the market? Instead, you always trade your beliefs about the market.

So isn’t it time you learned exactly what you are trading?

Second, determine your objectives for trading. System experts know that understanding your objectives thoroughly is half the battle in developing a system, yet most people have never taken the time to even consider what their objectives might be. Thus, you need to determine exactly what you want out of your trading system.

We’ve found that most traders and investors are missing one key ingredient in their objectives—financial freedom. For example, at a recent workshop, one of the attendees told me that he had made a 1,000% return in 2005—that’s right 1,000%. However, that trader was missing this critical ingredient. And because he didn’t have any objectives on what it meant for him to be financially free in terms of profit-taking, it’s probably the difference between whether or not all of that profit will be put to good use or lost in future trading. The topic of financial freedom is covered extensively in my book Safe Strategies for Financial Freedom.

Third, understand the big picture. What’s the market doing overall and how can I measure it for myself? This is a very important skill—and if you really take the time to do it, it will probably help you prevent a disaster.

Fourth, include three strategies in your business plan that are compatible with the big picture. Although there are thousands of systems out there, there are not many types of strategies. These are things like trend following, band trading, and value investing. You need to learn how the strategies that you plan to adopt work, why they work, and how you can adapt them for yourself.

Fifth, learn what your personal edges might be and how they set you off from the crowd. Having an edge in the markets isn’t just a slight advantage; it could be the pivotal difference in your success. So it’s very important to list your edges in your business plan and to be able to capitalize on them. Discover the key edges that almost any investor has over market makers or institutional investors. Or if you are a CTA, hedge fund, or portfolio manager, learn your particular edges.

Sixth, understand the key systems that almost every business must understand and start to think about developing structures for those systems. From marketing to cash flow, to back-office and clients, trading should be regarded as a business, and developing the right structures and systems is crucial for business success. For example, even if you are a private trader, you must deal with clients—even if your only clients are you and your family.

Seventh, develop a worst-case contingency plan. The key to a successful business plan is to be able to overcome disaster. Most people don’t even consider this until it’s too late. Learn how to generate an extensive worst-case contingency plan with strategies of how to deal with each disaster so that they minimize the effect on your trading business. Learn the key areas around which your worst-case contingency plan should revolve and get a good start on creating them.

Steps 8 through 13 are designed to deal with the general formula for developing strategies and trading systems for your business plan.

Eighth, select your trading market. Are you going to trade stocks? Are you going to trade futures? Are you going to trade mini-forex or real forex through the big banks? Are you going to do options on any of these? Whatever you select must take into account the big picture and what is likely to happen in the next five to ten years.

Ninth, prepare to develop a strategy. This involves doing an extensive study of the primary markets that you wish to trade. It also involves developing realistic but challenging goals for your performance. And you must determine your current beliefs about the market you wish to trade and the strategies that must work.

Tenth, master the key steps in strategy development and how to test for each. You need to learn about testing exit signals, how to determine your initial risk, and how to select and test your profit taking exits. This is not a substitute for any of our specific system development work. It just involves taking these key steps and being able to test your work.

Eleventh, properly evaluate your system. Here are four major ways to evaluate your system, listed in terms of importance:

  • Your win rate.
  • Your expectancy.
  • Your expectunity (link to our glossary for a definition).
  • And your system quality number.

These are all basic Tharp concepts, but you must master them.

Twelfth, get to know your system well without a lot of cost. The best way to do this is to trade at a low position size to determine if your initial testing was accurate. Through this testing, you’ll be able to develop a simple position sizing model to fit your objectives.

Thirteenth, develop a position sizing model to meet your objectives. You must understand that the key to developing a system is to develop position sizing models that will do the job. This step is one of the keys to developing a system that fits you and very few people understand how to do it.

The remaining steps involve working on the most important factor in your trading—you. Most people totally ignore this point, but it’s critical for top trading performance.

Fourteenth, do a complete self-assessment.

  • In order to do this you must understand the following:
  • How your personality type impacts your trading.
  • How to develop the personal responsibility that you must have as a trader and assess yourself on it.
  • How to assess your beliefs and values.
  • And you must understand some of the key issues that might really interfere with your trading.

Fifteenth, do something on a regular basis to really improve your discipline and emotional control. This is the step that will separate you from other traders and launch you toward top trader status. We at the Van Tharp Institute have a lot of suggestions along this line and the most important is working on the Peak Performance Course.

Sixteenth, get your body in top condition. Your mind can only be in top condition if your body is in top condition. There are various procedures for doing so, including both diet and exercise. Your job is to decide what’s right for you.

Seventeenth, develop a top-down approach to discipline. The procedures for doing this are covered in our Psychology audio series. Also, we strongly recommend that you attend the Blueprint for Trading Success Workshop so that you can get worksheets and immediately apply this process to working on the 17 steps. Also, if you combine top-down discipline with regular self-work, you’ll be amazed at the difference in your trading.

If you’d like more information on how we can help you with the 17 steps, then continue reading. Some people take years to discover just a portion of these 17 steps. What we recommend is that you listen to the teleconference on the 17 Steps (which is free with this link) and then consider attending our Blueprint for Trading Success Workshop.

I have worked closely with traders and the markets for over 20 years. I’ve seen the good and the bad, which has given me experience and insights into what works and what doesn’t work in the trading game.

The same questions, fears, and lessons continue to rear their heads year in and year out, and I have therefore designed this course to let you know that you don’t have to go through it alone; many traders have come before you and this is your opportunity to learn their successes and mistakes and what it really takes to be a great trader.

My commitment is to give you a thorough overview of what it takes to be a successful and consistent trader, and a 17- step action plan to be the “great trader” that you truly want to be.

So plan to sign up for our next Blueprint for Trading Success and join me for an exceptional workshop on your trading journey. — Van K. Tharp

“This is the best conference I have ever attended. This is the hardest conference I have ever attended. I had to ask myself some of the most difficult questions I’ve asked in a long time…Van and Mel are not just great trading coaches, they are great people. You are a breath of fresh air in an industry full of hucksters.” —S.W., Rancho Mirage, CA

“The course far exceeded my expectation and threw up ideas which had just not existed on the mental horizon. Apart from being a better trader, this course will make me a happier and more complete human being. A stupendous course.” — Satyendra Kumar, India

More attendee feedback:

“Excellent preparation for the real world of trading. Thank you.” —Alan Collin, FL

“It was really a fantastic program which illustrated for me the commitment and intensity it takes to be a full-time trader.” —Janelle Samples, CA

“This course provided me with clarity on all the essential steps to successful trading. The interaction with other attendees is unmatched.” —Siaka Yusuf, MI

“Unbelievable. You have truly opened my eyes. Thank you for the format. It is challenging yet obtainable. I will be back.” —Tripp Waynick, SC

“It was a logical overview of what a successful trader needs to do and be.” Tad Schinke, IL

“I think this course gives people a sensible place to start and will save people a lot of money. Very thorough.” —Kate Rooney, CA

“The exercise on developing Big Picture plans was excellent.” —Chuck Whitman, IL

“I am always so glad for the interaction with other trading professionals.” —Paul Kluskowski, MN

“Excellent workbook materials.” Jonathan Lee, Sydney, AU

“Great start for the work ahead. The format of exercises and activities give direction for the much larger processes of planning and analysis. From the initial course exercises, I have new ideas for further development at home.” Beth Sime

“Wonderful experience. Not only Dr. Tharp sharing his years of experiences, but also participants. You will have a lot of experiences in trading and investing in this workshop. This is a shortcut to learn. You need this workshop as a blueprint for trading success.” Chris Wijaya, Indonesia

“An extraordinary and wonderful experience. No other workshop that I have attended before gave me a better positive impact more than Van Tharp’s. He gives me a crystal clear understanding of the most crucial things in trading success. It was worth it to fly thousands of miles just to attend this workshop.” Agustino Karnadjaja, Indonesia

“I found the mental self work fascinating and am looking forward to practicing it. Also, the SQN will be invaluable to system development. I’d highly recommend this course to any who wants to trade.” Jon Gould, Australia

“Well structured and put together expertly. Van is clearly highly experienced and knowledgeable and presents his material with enthusiasm. The fact that he speaks from experience makes the learning experience that much richer.” Michael Tan, Australia.

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