The 5-Step Process That Took Me From Failed Day Trader to Consistent Profits

I’ve been trading off and on from 1998 to 2016. I never took it that seriously, other than my retirement account investments, which were longer term. Mostly I just invested in the S&P 500 index. It’s done well because I simply dollar-cost averaged.

In 2016, I decided to get back into day trading. The first two times I tried it, I failed badly and blew up one futures account in the process.

From 2016 to midway through 2017—about 1.5 years later—I finally found consistency. From 2017 to 2020, or a little over four years, I had an average return of 132% on my account. That means I roughly 5x’d it in four years.

I retired in 2020 when COVID hit, and I still trade full-time to this day. I’ve made more than enough money for myself and will likely stop day trading soon. That being said, I enjoy it and find it fun and challenging—almost like a money game.

Anyway, this is the bigger-picture five-step plan I would say anyone needs to follow. Even if you are a fundamentals-only, longer-term investor, you still need to verify that your thesis is sound. How are you going to do that?

The nonsense of saying “not everything is quantifiable” is often just an excuse to be lazy. Some things are harder to quantify than others, to be sure—at least right now. Or maybe it’s just an excuse to avoid facing the cold, hard truth that you don’t know as much as you thought you did and that your plan really doesn’t work.

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Bigger Picture: 5-Step Process to Becoming a Successful Trader

Each step involves numerous smaller steps, but this will give you an overview of the process you’ll be involved in.

Keep in mind that learning about the markets never stops. It’s an ongoing process as markets change over time. You should allocate a portion of each day toward learning something new, or at least keeping up with current events. Patience is an asset here—there is no rushing this.

1. Find setups that work for your situation

Everyone trades differently. Your setups need to fit your personality, time availability, and risk tolerance.

2. Test your setups

a) Backtest first

Then move to small positions until you’ve proven the strategy works in forward testing.

• If the backtest looks good but the forward testing doesn’t fall in line, you need to address that before moving forward.

3. Scale up once the setup is verified

Once your setup has been verified with small positions, you can begin scaling up.

Every setup and instrument is different in how you approach this, so you’ll need to experiment to find the best method.

4. Continuous monitoring of the setup

Your trading is based on your backtesting, so it’s critical to monitor performance.

Keep two things in mind:

1. The market is always changing.

2. The only way to maintain confidence in a system is to compare current performance with historical results.

Your backtests are your lifeline. They are everything.

You need to know the historical ranges for your setup:

• How many consecutive wins?

• How many consecutive losses?

• Typical drawdown periods?

These give you the tolerance ranges for the setup. Everything should continue normally unless one or more of those ranges are broken and something new appears. At that point, you need to reassess what’s happening and why.

5. Manage risk

This part is very simple: diversify.

Diversify across:

• Several setups

• Multiple markets

• Different market conditions

For example:

• Some setups may be trend-following.

• Others may be mean-reversion.

They will perform differently at different times, but both should be profitable over the long run.

You should also use software and tools to help you scale up—automation, EAs, or anything else that improves execution and efficiency.