New Trader, Rich Trader 2: Good Trades, Bad Trades

by Steve Burns and Janna Burns

Overview

Published in 2014 by BN Publishing, this sequel continues the dialogue-based teaching format of the original New Trader, Rich Trader. The fictional characters New Trader and Rich Trader explore the crucial distinction between good trades and bad trades, with New Trader having progressed beyond basic concepts to confront the real-world challenges of implementation.

Core Thesis

A good trade is not necessarily profitable, and a bad trade is not necessarily a loser. Trades should be evaluated by the quality of the reasoning and process behind them, not by their immediate outcome. Consistently making good trades (trades with an edge, proper risk management, and disciplined execution) leads to long-term profitability, while consistently making bad trades (trades driven by emotion, ego, fear, or greed) leads to ruin.

Three-Part Structure

Part I: Managing the Mind -- Covers confidence versus opinion-based trading, disciplined entries, fear of missing out, trading to satisfy ego versus trading for profit, and managing internal conflict.

Part II: Creating a Robust Methodology -- Distinguishes between system-based and opinion-based trading, maintaining consistent timeframes, reacting to price reality versus personal judgment, trend identification, and staying within one's circle of competence.

Part III: Managing Risk -- Covers the 1% risk rule per trade, the 3:1 risk/reward ratio, maintaining discipline during drawdowns, limiting downside while preserving upside, and optimal position sizing.

Key Lessons

The dialogue format makes abstract concepts concrete: the best trader you will ever be is the one who does research outside market hours; the worst is the one sitting on losses wanting to get even. Entries, exits, and position sizes should be determined by the analytical mind when markets are closed, not by fear, greed, and ego while markets are open.