Retail Traders Struggling With Markets - Navigating Trading Challenges
How Trading Really Works: 20 Principles You Need To Know (Part 1)
After 8 years, 11,000+ hours, countless mistakes, blown accounts, books, mentors and chart reviews, these are the 20 principles that mattered most. I hope they will save you years on your trading journey. This is part 1 of 6 - the next parts will be uploaded later the upcoming time.
You before and after the trading journey
A STRONG FOUNDATION
1. Managing expectations.
When I was 14 years old I thought I'd get a six-pack in a few months. Turns out I was wrong and naive. It took years of training, experimenting and making mistakes before I got the results I wanted. Learning how to trade turned out to be VERY similar.
For some reason, people assume they can become consistently profitable in a year or two. Yet the same people would never dare to think that they can become a surgeon, lawyer or professional athlete that fast. So why is it that when it comes to the stock market, everyone seems convinced they're different? I was willing to work hard, study charts, read books and put in the hours. But what I underestimated was how many different ways there are to be wrong in this business.
• Time horizon- Assume it will take significantly longer than you think. Most people dramatically underestimate how much experience is required before they can consistently make money.
• Experience- Trading is a field where experience compounds. Reading 100 books will never ever replace seeing the same pattern play out hundreds of times in real market conditions.
• Humility- The less experience you have, the less you realize what you don't know. You are unconsciously incompetent. That's one of the reasons beginners often become overconfident so quickly.
The game taught me the game. It didn’t spare the rod while teaching. - Jesse Livermore
Managing expectations
2. Learning how to learn.
One of the biggest problems in trading is information overload. There are millions of videos, tweets, books, newsletters, Discord channels and podcasts competing for your attention. The problem is that a big percentage of it is wrong, misleading, fraudulent, or irrelevant. When you're new, you don't know what you don't know, and this makes finding genuinely useful information incredibly difficult.
For years I convinced myself I was improving because I was consuming content. But what moved the needle was doing actual deep work, studying with focus, meeting my trading mentor, studying charts, and going through my setups. Profitable traders might have their own strategies, but they all spend a lot of time going through their watchlist, setups and trades.
• Discovery- Books, interviews, posts, articles, and communities can expose you to new ideas and occasionally provide insights that might just completely change how you think about the market.
• Chart study- This is where most of my progress came from. Looking at thousands of charts builds pattern recognition in a way passive learning never can.
• Trade review- Every serious trader I know reviews their winners, losers, entries, exits and mistakes. The market gives feedback every day if you're willing to listen.
• Finding your style- At some point you need to stop searching for new ideas and start refining a process that fits how you naturally think and make decisions.
You need to study thousands of charts with your setup. - Kristjan Qullamaggie
Learning how to learn
3. A look at the market cycle.
Before trading stocks, I spent years trading FX. Looking back, switching to stocks was one of the best decisions I ever made. Unlike many markets, stocks have a natural upward skew because businesses are constantly trying to grow, innovate and increase profits. Like many beginners, I became obsessed with beaten-down stocks because they looked cheap. I assumed the best opportunities would be ‘hidden’. I was constantly looking for obscure companies and undiscovered ideas that nobody else had found yet. Then I started studying actual market winners and I read Stan Weinstein's book on stage analysis which really changed things for me.
• Market skewness- Stocks have a natural upward bias because businesses are constantly trying to grow. That alone gives both investors and traders a structural advantage compared to other markets like FX or crypto.
• Institutional buying- The biggest winners are almost always accumulated by institutions long before the public notices. Following that money is usually more productive than trying to outsmart it.
• Relative strength- One of the first things I look for is whether a stock is outperforming the market. Leaders tend to keep leading longer than most people expect. This comes in ‘waves’ and will change over time.
• Weinstein Stages- The goal is to get in during a late Stage 1 or an early Stage 2. It will make your life much easier if you simply ignore everything else. Read the book from Stan Weinstein if you have to.
The trend is your friend until the end when it bends.- Ed Seykota
A look at the market cycle
4. The only indicators you need.
I got completely lost in the indicator rabbit hole for years. I've tried just about everything. Like most traders, I was convinced there was some magical combination that would finally make everything click. What I eventually realized is that most indicators are describing some variation of the same things: price, time, volume and sometimes momentum. The more indicators I added, the harder decisions became because I could always find evidence supporting both sides of a trade. Indicators are like crayons on the chalk board. It all might make sense in retrospect but few are actually helpful and somewhat predictive in nature.
• Moving averages- I always use the 10, 20 and 50 EMA. I generally don't do anything with stocks trading below the 50-day moving average, and I use the slope of the 200-day moving average as part of my scan criteria.
• Dollar volume- I prefer dollar volume over regular volume because it gives a much better indication of actual money flowing into or out of a stock, making institutional activity easier to spot.
• Simplicity- These days I'm much more interested in removing things than adding them. My overall decision-making improved as my charts became less complicated. I love clean charts.
• MACD- This is optional but you can try to add a 3/9 MACD to more easily spot ‘dips’ to buy up a stock during an uptrend. This is somewhat aligned with Linda Raschke’s method of trading which is based on The Taylor Method.
Price is the final arbiter.- Paul Tudor Jones
The only indicators you need
5. The power of simplicity.
I am a big believer in keeping it simple so I hate tools overcomplicating things. Some tools are genuinely useful and I still use some of them (see list of tools at the end). Others were a disaster. In some cases, it took months just to learn a new platform before eventually abandoning it and basically moving on to the next one. (I'm looking at you, Sierra Charts.)
One thing I learned is that most trading software is about as user-friendly as a maze is to a drunk. It throws an absurd amount of information at you and assumes more information automatically leads to better decisions. In reality, it often does the opposite. It’s not exactly helpful if someone tells you there are 4,282,292 trees nearby when you are lost in the jungle. Yet that seems to be how many of the tools and platforms operate.
I realized that good software saves time, but great software helps you make decisions. That's partly why I started buildingmy own platform. I just got tired of jumping between a dozen tabs just to answer relatively simple questions. Point being, everything should be made as simple as possible, but not simpler. Do what works for you, keep it simple.
• Information overload- Most of the trading software gives you more information than you need, not less. The real challenge is filtering signals from noise.
• Decisions- Good software helps you analyze. Great software helps you decide. That doesn’t exist yet but I’m hoping to build it some day if I can get enough support from people.
• Process > Tools- The successful traders and investors are successful because they have a process and execute it consistently. Tools matter, but they're multipliers, not necessarily an edge in itself.
Simplicity is the ultimate sophistication. - Leonardo da Vinci
The power of simplicity
6. Style and personal preferences.
For years I'd discover some successful trader, study everything they did and then try to become a copy of them. I'd read Minervini and want to trade like Minervini. I'd see an interview with some algorithmic trader and try that. Then I'd discover some new strategy and spend months on that.
Looking back, a big part of my journey wasn't finding the "best" strategy. It was figuring out how I'm wired and building a style around that. These days my approach is really just an amalgamation of ideas I've stolen from dozens of traders over the years and combined into something that fits me.
• Personality- Some people are momentum traders. Others are investors. Others are contrarians. Fighting your personality is usually a losing battle. It will take time to find your own ‘style’.
• Principles- Different people use different methods, but many operate from the same basic underlying principles: proper risk management, patience, discipline, good timing, and conviction.
• Your style- The goal isn't to become a carbon copy of somebody else. The goal is to take the ideas from others and gradually build a style that makes sense to your own brain. It needs to ‘resonate’ with you.
I don’t have to turn you into me! I have to turn you into you! - Master Shifu
Style and personal preferences
WHAT ACTUALLY MOVES STOCKS
7. Understanding market conditions.
One of the most humbling realizations I've had is that you don't get to dictate market conditions. Ever. You can't control whether your setup works today, tomorrow or next week. This isn't like a normal job where you exchange time for money. As my mentor likes to say, it's feast or famine.
I often compare trading to surfing. You can have the best surfboard in the world and be the most skilled surfer on the planet, but if there are no waves, you're not catching anything.
No matter how good my scanners, watchlists or entries are, if market conditions aren't supportive, very little works. On the other hand, when conditions are right, leaders act well, breakouts hold and money flows naturally into risk assets. One thing I've noticed is that setups working or failing is often a market health indicator in itself. If setups aren’t working, be very careful.
• QQQ- This is the first thing I check every day. If it's trading above the 20 EMA and 50 EMA, conditions are generally bullish. Above the 10 EMA often signals a particularly strong environment. Below the 20 EMA, and below the 50 EMA, I don’t trade basically. Above all, I want to see a positive slope on the moving averages.
• IWM- Small and mid-cap stocks tend to tell you whether institutions are willing to take risk. When the Russell 2000 is outperforming, speculative setups generally work better. When it's weak, I become more cautious.
• VIX- I like seeing the VIX below 15. Lower volatility tends to create a healthier environment for momentum and breakout strategies. Personally, I avoid trading when the VIX moves above 20.
• Breadth- If 8 out of 11 sectors are declining, that's usually not a great sign. Strong markets tend to have participation across sectors, not just a handful of names carrying the indexes.
• Success rates- This is probably the most important one. If good setups are repeatedly failing, I don't need the news to tell me something is wrong. The market is already giving me the answer.
• Price action > News- I do enjoy reading the news, but I pay far more attention to price action. In my experience, the market usually knows something long before the headlines catch up.
There is a time to go long, a time to go short and a time to go fishing. - Jesse Livermore
Understanding market conditions
8. Sector & industry rotation.
There are two primary ways I find stocks. The first is through scanners that filter roughly 6,000 US stocks down to a manageable watchlist of about 100 stocks give or take. The second is by following what I call momentum leaders within the strongest sectors and industries. Why? Because stocks rarely move in isolation. Money flows through the market in clusters. First a few stocks start moving. Then a theme starts working. Then an entire industry starts showing strength. Then a sector starts attracting attention. True leaders automatically separate themselves from the pack but stocks move together in the end.
Once I started paying attention to sectors and industries instead of just individual stocks, finding opportunities became dramatically easier because I stopped fighting where money was already flowing.
• Industry leaders- I always want to know the top 5 stocks within a strong leading industry. That's often where the biggest opportunities are. When you see a new industry on the 1W or 1M, pay attention.
• Sector rotation- Money rotates between sectors. Understanding where capital is flowing to and from gives you a huge advantage because you're no longer guessing where leadership will come from.
• Spotting rotation- Each day I like to look at sector and industry performance across the last 3 months, 1 month and 1 week. This helps me identify emerging themes before they are obvious to everyone else.
• Following strength- Instead of asking what stock might move, I prefer asking where money is already flowing. More often than not, that's where the next opportunity comes from.
You want to own the leading stock in a leading industry. - William O'Neil
Sector & industry rotation
9. Why winners keep winning.
People love hunting for bargains. This is especially true in the stock market. We assume a stock that's down 70% must be a better opportunity than a stock making new highs. But the market rarely works that way. The truth is that the strongest stocks often become even stronger. Stocks making new highs frequently keep making new highs. On the other hand, stocks that are weak and beaten down usually keep falling, often much further than anyone thinks possible.
If you think about it, a $5 stock can be incredibly expensive while a $500 stock can be incredibly cheap. When I started studying historical winners, I kept seeing the same pattern. Names showing exceptional relative strength often continued outperforming for months and sometimes years. Meanwhile, many of the stocks that looked cheap stayed cheap or got even cheaper. One of the biggest shifts in my trading came when I stopped asking what looked undervalued and started asking where the market was already showing me strength.
• Momentum- Unless I'm looking for a short, I like to see momentum. I want stocks outperforming the market and showing more buying than selling pressure. If a stock is acting well while the broader market is struggling, that's usually information worth paying attention to.
• Fundamentals- I primarily focus on accelerating sales and earnings growth. Ideally the company is also profitable and generating strong returns on capital (ROE). But above all I want to see acceleration. Institutions pay for growth.
• Uptrend- I want the stocks making higher highs and higher lows while trading above rising moving averages. My favorite names usually have a strong slope on both the 50-day and 200-day moving averages, which often signals sustained institutional demand over a longer period.
Buy high and sell higher. - Nicolas Darvas
Why winners keep winning
10. How I scan for stocks.
Now that you learned a thing or two (hopefully) the question is, what should you look for? One thing that took me far too long to understand is that there are really three ways to evaluate a stock and you always need to be able to ‘scan’ the market and find stocks. This is a must.
• Technicals- Shows you what the market thinks. The chart is a visual representation of supply and demand. Whether a stock is weak or strong can often be determined from the chart alone.
• Fundamentals- Shows you how the business is doing. Revenue growth, earnings growth, margins, cash flow, and profitability help paint a picture of the underlying company mechanics.
• Relative Strength- Shows how a stock compares to everything else. A company can have great fundamentals and a decent chart, but if there are 50 better opportunities in the market, why own it?
Once I understood those core market concepts, the next challenge was finding opportunities consistently. That's where scanning comes in.
Just so you know, there are about 6,000 stocks listed in the United States. I’d say about 3000 of those are illiquid, low-quality, speculative garbage or businesses you would never want to touch. That’s also why I didn’t even include them on myplatform. They are basically nuclear waste.
Here are some of the things I scan for:
• Uptrends- I primarily trade momentum, so I want stocks making higher highs and higher lows with rising moving averages. Ideally the 20, 50 and 200-day moving averages are stacked correctly and sloping upward.
• Combos- These are stocks that have at least 25% quarterly sales growth, 40% yearly growth, 150% more volume than the last 20 days, and are in an uptrend. This is heavily inspired by O'Neil's work.
• Leaders- Momentum leaders are usually stocks that move as a cluster in a particular industry or theme. These are the potential giants of tomorrow that I want to have on my radar as early as possible.
I then get a list of stocks and go through that list. I usually have two lists, one is about 100 stocks I want to keep an eye on, and the other is a list of my top 10 stocks for the week. Once I go through the charts I look for the following in most cases, which are my ‘basics’.
•Linearity- Above all I like to get in stocks that just have a very beautiful move to them. The charts are nice to look at, clean, with orderly pullbacks, and they are respecting the moving averages.
• Volume- I want to see either a Pocket Pivot or very high volume on a candle that breaks out of a tight range. Volume needs to be there. I want to see high volume on legs up, and low volume on pullbacks.
• ADR- Ignore slow stocks completely (<4% ADR). You want stocks that are fast enough to give you good gains (>4% ADR) but not too wild and volatile which will just lead to getting stopped out (>8% ADR).
After this, which yields me around 100-150 stocks, I look for stocks that are set up according to one of the setups that I like to look for.
• Setups- With the exception of my mean reversion setup, I look for tightness to enter and look for bases, VCPs, wedges, and flags. I do not care for anything else, unless I’m deliberately experimenting.
For those curious, my basic scanner is surprisingly simple:
ADR: 4-8%
Market Cap: $300M+
Liquidity: 100K+ dollar volume
Trend: Rising 50 and 200-day moving averages
Luck is what happens when preparation meets opportunity. - Seneca
How I scan for stocks
How Trading Really Works
I know this was a long read, so if you made it this far, thank you.
I hope there is at least one idea in here that will make you look at the markets differently from now on. Looking back, most of the lessons that moved the needle for me weren't particularly complicated. The difficult part was figuring out which lessons actually mattered and then applying them consistently over a long period of time. This series will be 6 parts in total.
PS: If you made it this far, consider sharing this with others.
BONUS
Make sure to check outthis, which is built based on the principles shared in this post. I'm also looking to speak to and interview people who struggle with navigating the financial markets so I can better understand what you find difficult. Interested? Reply 'interested' or send me a DM.
RESOURCES
How Trading Really Works(slides)
How Trading Really Works(youtube)
POSTS
How Trading Really Works - Part 1
BOOKS
Reminiscence of a Stock Operator - Edwin Lefèvre
How to Make Money In Stocks - William O’Neill
How I Made $2 Million in the Stock Market - Nicolas Darvas
Principles of Professional Speculation - Victor Sperandeo
Trade like a Stock Market Wizard - Mark Minervini
Market Wizards - Jack Schwartz
Dao of Capital - Mark Spitznagel
YOUTUBE
Stockbee
Qullamaggie
Trading Lion
Roaring Kitty
TOOLS
TC2000
Spiceliner
Finviz
TradingView
PEOPLE
Jeff Sun
Qullamaggie
Mark Minervini
Evan Evans
Dan Zanger
Lone Stock Trader
Jim Roppel
BONUS. A TLDR for the lazy lurkers
It takes way longer than you think. Expect 5–10 years, not 1–2.
Studying ≠ learning. Focus on setups, charts, and understanding.
Stop buying garbage. Follow strength, ignore the "cheap" stocks.
Most indicators are noise. Simple charts lead to better decisions.
Keep your tools and platforms simple. Build a process for yourself.
Trade your personality. Build a style that fits you, not your hero.
The market comes first. Great setups fail in bad conditions.
Money moves in sectors. Follow where capital is flowing.
Strong stocks get stronger. New highs often lead to more new highs.
Scan for quality. Uptrends, growth, volume, strength, and liquidity.