The Roadmap To Becoming A Profitable Trader

This is how you actually become a profitable trader. There are no short cuts. No holy grails. Just hard work. Don’t want to be a part of the 99% failure statistic? Here is your rough roadmap.

Learn – 3-6 months (some faster, some slower)

In this phase you are spending time and energy not with the intent to make money, but learning about how the market works. Exploring different instruments you are interested in trading. Finding out what style of trading most aligns with your psychology.

Foundations of learning are fully understanding three pillars of trading: Technical Analysis, Risk Management, Intermarket Dynamics.

Technical analysis – Strategy formation

At the bare minimum you need to fully understand price action, trends, and multi timeframe analysis. Our technical analysis bootcamp is clearly what we would suggest, but find any resource that suits your learning style. It doesn’t have to be Trade Brigade. If you want some great places to start, check out our top 5 book list here.

Generally, the best system is something that is simple, easy to execute, and repeatable in any context. For me, it’s a level to level system using multi-timeframe analysis. What is happening on the daily chart? Where are we in the hourly trend count? Is there something on the smaller 5/15 minute timeframe to execute a solid risk reward trade?

On all of those time frames, a base knowledge of technical analysis is required to truly understand what the market is trying to do, and evaluating how good of a job it’s doing in accomplishing that.

Risk management – Staying in the game

Set up the parameters of your account. You should never have at risk more than 2% of the account in the learning phase. 2% is the stop loss, true risk amount, not amount of capital in the trade itself. 2% is also not a stop on your position where if you lose 2% of the position you stop out. You must figure out a logical structural stop loss, and size the position appropriately so that if you were to stop at that level, the loss represents 2% or less of your total trading account size.

The focus here should be in understanding what it takes to achieve a positive expectancy with the price action strategy you are using. If your win rate is low, you’ll need a higher R:R rate. If your win rate is high, you can use a lower R:R rate.

During this phase you should also think about what puts you on “tilt.” Part of your process at this point should be to identify the catalysts for you to become unstable and make illogical decisions. The book that comes to mind is Jared Tendlers, Mental Game of Trading.

Intermarket dynamics – The Trade Brigade edge

This section is up to your own discretion, however it’s a decent chunk of what Trade Brigade builds an edge on. At minimum understanding how the big three indexes work together is key. S&P 500 (SPY), Nasdaq 100 (QQQ), Russell 2000 (IWM). What are small caps saying relative to the Nasdaq? Are internals confirming any market movement? The more time you have in the seat, the better your understanding of this will be.

More context can include looks at things like the dollar, interest rates, bonds, etc… but more often than not, this is just an end of day check in if the market makes an out-sized move. There is no sense in obsessing intraday about how the 3-7 year vs the 7-10 year bond is performing. Monitoring too close will cause paralysis by analysis. If you want the Trade Brigade context charts check out this chart package.

Implement – 1-2 Years (Not a suggestion, need this time)

Once you have landed on a profitable system that you’ve backtested successfully and works for your psychology, you should spend at least a year if not more executing that system beginning with incredibly small and most importantly consistent size. You’ll learn to trust your instinct, and you’ll also collect a ton of data along the way.

This is where fine tuning can take place but avoid “tinkering syndrome.” This is where you start adding things and taking things away that may or may not have an impact on your trading. If the system works… don’t break it for the sake of novelty. The best analogy to use is “avoid the woman in the red dress.” If you are a chart price action trader, don’t suddenly switch to only order flow trading because you think it’ll help. It’s a distraction.

When you are in the implementation phase, all trades should be documented. The best tool to use is TradeZella. An XL spreadsheet with some formulas is an alternate way to track the total R:R / percent win rate of your strategy.

At the individual trade level:

  • Date / Time / Ticker
  • Entry
  • Target Exit
  • Stop Exit
  • Intended R:R
  • Net P/L
  • Max P/L
  • Max Drawdown
  • Realized R:R
  • Lost potential P/L (if exited manually not at target or stop)
  • Time in trade
  • Notes on the context of the day

At the total aggregate trade level / account balance:

  • Percent win rate
  • Running realized R:R
  • Net P/L

The idea is to build a mountain of data that proves your strategy is profitable. If the data works out to express positive expectancy, then the only thing left to conquer is yourself and the “human” errors we make while trading.

Scale – 3-6 months (per scale interval)

Scaling is the most difficult part of trading because it puts everything that you’ve built and trust right back under pressure again. A “normal loss” now will feel more painful with larger size. You’ll second guess yourself. Sure the wins will be larger as well, but humans feel the pain of loss more so than the triumph of victory. To avoid this, think of scaling like a gradual ramp instead of large stair steps.

Let’s say we’re working from 1 contract to 5 contracts /ES. To start it would be reasonable to go first from 1 /ES to 2 /ES. Recognize though that you just DOUBLED your size. Same relative math as going from 50 contracts to 100 contracts… You’ll have the ability to leave a runner on and you should stay at that tier of the scale for a month or two until you become comfortable with the new relative loss and gain.

You want to allow yourself an opportunity to see your edge play out with the new size. Not enough time, and a bad loss can scare you out of seeing the newly sized gain. Or worse, a winning streak will leave you blindsided to the size of the new loss when one eventually comes due. Once you are comfortable with that second contract, you can move along to the 3-4 range. Spend a good chunk of time here for the same reason. Perhaps a month or two.

The final contract, moving to five in this example should feel natural and hardly impact your emotional tolerance now that you’ve eased into this process. The whole process is aimed at avoiding going from 0 to 100 and not being able to overcome the psychological burden of that.

As you scale you’ll eventually hit a plateau where it just becomes unbearable to add any more size. The number is different for everyone, and sure the backtested and forward tested system says you’ll be okay… and the winners will work out the losers… but mentally, seeing that number is too big a barrier to overcome. It’ll take something outside of trading to get over the hump.

It would be great if we could fall back on our spreadsheets and say it’s all good… but trading is a highly emotional endeavor, and this plateau is worth respecting. Poke at it too many times, and you run the risk of a blow up. Remember from the risk management section, the name of the game is to stay in the game.

For the average trader, in the market index instruments or options on mega cap tech there’s not much of an issue with slippage and becoming too big of a “target.” If you’re trading smaller micro caps, size can become a limitation of the system.

(Working towards) Replacing Your Income

Trading needs to be done from a mindset of abundance not scarcity. Needing to trade, and perform well to make this month’s payments is NEVER a situation you want to be in. The rags to riches story is often either not true, or massively influenced by survivorship bias. Not a bad idea to hold onto your career or drop to part-time as you make this transition.

If you’re not at the point of making multiples of your prior average annual income in a single month, you need to take a tactical approach to goal setting. Monthly expenses x3 should be a bare minimum monthly goal. Even this can become tight and stressful if you go through periods of larger drawdown or consistent loss.

Monthly expenses should include ALL of your capital outlay for fixed and variable estimates. Example: 5k monthly expenses x 3 = 15k minimum monthly goal.

Set up 3 bank accounts

  1. Taxes
  2. Reserves
  3. Spending

33% of that at minimum should instantly get shaved off the top into the tax account. Consult a CPA to figure out your exact bracket, how you should handle quarterlies, or if there are alternate structures that can reduce your tax burden.

33% goes into your reserves. There will be a day, week, or month that stings and you’ll be glad you can refill the account from here, not your spending money. The idea is to build a system that is robust enough to not break at the first signs of stress.

33% goes into your spending account to cover your responsibilities. This includes any pre budgeted responsibilities to yourself such as retirement savings, emergency fund savings, vacation savings, etc… If you have leftovers at the end of a month, it is usually a good idea to let that accrue so any surprise variable expenses are covered in the future.

If the reserve account accumulates more than six months of average profit, redistributing the excess into the spending account is acceptable for whatever purpose you’d like. Don’t be tempted to put it back in the brokerage account and size up unless you have a deliberate plan to do so. Without a plan you can develop a dangerous mentality viewing the excess as “house money.” And as we all know house money goes faster than it comes. Protect what you worked hard for.

Withdrawing Funds

If you have an excellent day, some outsized move 3x or more of your normal profit, it is not a bad idea to withdraw that day to make the gains real. If they’re in the brokerage account, they’re technically still at risk. A regular withdrawal schedule should be implemented to reduce the amount of stress in your system. It could be monthly, weekly, bi-weekly, whatever it takes to get in the habit of withdrawing and paying yourself.

Remember in this phase, the point is to trade for income, not grow an account from 100k to 500k or whatever number you pick. You have your 100k of working capital, and you use it. No need to have excess unless the scale and size warrant it.

The other psychological risk of leaving large winners in the account is the “God” complex. You feel invincible and like you can’t make any mistakes. Leads to over leveraging, and soon enough, one or two trades go wrong and all that hard work is gone. Trading is “easy” work; after all we just click buttons. But the constant outlay of capital, being put in harm’s way is incredibly hard. Any money you make in the market should not be thought of as house money.

Becoming Resilient

A leap to full time will put lots of pressure on you, and it’s important to remember that execution matters. You’ll want to avoid having a weekly or daily goal as this is too specific and can tend to make you force trades even when there is not a setup present. Monthly goals at least leave the door open for having the goal hit next week. Or the week after. If you don’t quite hit it there’s all of next month to continue battling.

You’ve got to do things that alleviate the pressure if you’re only executing at the scale of 3x monthly. If you’re executing at the scale of 10x monthly… you’re beyond this point and likely don’t have a concrete goal. Before you get to 10x, it’s worth having a possible part time job to relieve some of that stress. Or before you ditch your main source of income, build a robust savings nest egg. Remember that trading from an abundance mindset is required. When you can pass on a setup because it doesn’t meet your criteria and not be worried about your monthly income, you’re one step closer to that frame.

Ensure Its Worth It

Trading needs to be worth the risks involved when trading at scale. A classic saying about the S&P 500 index is that if you can’t beat it, just own it. The same is true in trading. If you can’t beat the annual 8% the S&P returns on average it may not be worth it to actively trade.

For easy math let’s assume a $100k account. If you’ve traded your system at scale and end the year with $7,500 of profit, you’ve exposed yourself to likely a higher beta and returned lower alpha. Probably not worth continuing at that pace. If you returned $100k of profit at the end of the year, that’s clearly worth it and the added beta was warranted.

Time and location freedom are also considerations when it comes to determining if trading is worth it for you. Although they are attractive and can be what lures people to the career in the first place it likely does not offset the stress. It would be very rare that someone would continue trading at 3x monthly only for time and location freedom. It really requires scaling to 5x 10x 15x monthly to make this a worthwhile endeavor.