Early Stage Trader

The 4 stages of the trader, detail the path that a trader goes through to achieve consistency. They are the stages that everyone goes through and apply to all profiles and time frames.

1) Unconscious incompetence

In the first phase of learning, one is not aware that one does not know anything. Generally, people think that they would like to trade in the financial markets, but they don’t know how to do it, they don’t know the rules, they don’t know how to buy or sell instruments or which instruments to buy or sell. Basically we don’t know anything but we do know that it is a good way to make money, as we hear stories of people who have become millionaires or have left conventional work to make a living from trading. The bad thing is that we underestimate it believing that learning is easy. So this is when you start to think that in 6 months you could earn u$s100 a day or more, which is enough to make a living from trading, and you start to make operations without having much idea of what you are buying or selling, in some operations you win and in others you lose, until you get the bad streak of losses. After a while, you see that it is not as easy as it seemed and you assume that you don’t know anything.

2) Conscious Incompetence

Here we are already aware that we know nothing, so we decide to learn how to do it well and we realise that the world of trading and the stock market is more complicated than we thought at the beginning, so we accept that it will take more time and work. You start to buy systems, read books, learn from the internet, buy courses, etc. That’s all very well, the first thing is to learn the right way. But, at this stage, many believe that a few rules and a strategy will be more than enough to be profitable. While to some extent this is necessary to operate and become profitable, they have not yet learned that you and your psychology is the most important part.

This is why it is at this stage that more accounts are burnt and more people feel frustrated because they are not getting the results they expected. Since the psychological part of each person comes into play, then it is in this phase where profits are cut but losses are allowed to run, when they break their own rules or are random rules, when they change strategy every week or month not holding long enough to check if the system works, or put more money to “recover the lost” … until reaching the frustration of not understanding what is happening and being with stress through the roof. It is at this stage that you “suffer” the most, as you think you know what you are doing but in reality you know very little. If you are in this phase, don’t give up! It is an important part of the learning process of trading. Think of it as if you want to be an airline pilot tomorrow…would you get on a plane and fly it if you knew the basics or a lot of theory? Probably not, and they won’t let you do it. To be a pilot requires knowledge, a lot of learning, and a lot of SIMULATION. After many hours of flying, you will be able to fly your first plane. Trading is the same. So, if you find yourself here, just keep trying, one day the day will come that you long for.

Little by little you will start to get out of this stage and as time goes by you will get better and better.

3) Conscious competence

At this stage you trade when your system tells you to trade, as you realise that this is all you need to do to win consistently. You take your losses as well as your profits. You have acquired the discipline to carry out your trading plan and every time you make a trade you follow all the steps mentally to make sure you don’t go outside your rules. Little by little the results start to come.

4) Unconscious competition

You do the same as in the previous phase but you don’t think when you do it because it is already part of your routine. You are operating on autopilot, you act naturally and without any fear. That is the state of mind needed to be consistent: to be in line with the information the market gives us, accepting the risk.

That’s the way the professional trader is, he doesn’t perceive anything in the market as a threat.

All learning works in the same way, now you must know in which phase you are.

Beware if you run into arrogance

After you have gone through all the stages of being a consistently profitable trader, you must be careful because you can fall into arrogance, especially after an excellent run of winning trades. If you fall into arrogance, it can lead you to break the rules you worked so hard to learn, or risk more than you should, or anything that deviates you from what got you here.

Even if you are unconsciously competent and operating in automatic mode, you must never let your guard down. Remember that in this, the worst enemy is always yourself. As we have recommended in previous issues, if you are on this winning streak, take a few days off. Arrogance can also lead to greed, and getting into that vicious circle is not what we are looking for.

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