Stage One: Unconscious Incompetence
This is the first step you take when starting to look at your trading chart. You know that it is a good way to make money because you’ve heard so many things about it. Unfortunately, just like when you first wish to drive a car you think it will be easy – but after a certain time, how hard can it be? Price either moves up or comes down – what’s the big secret to that then – let’s get cracking!
Unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven’t got the first thing about what you’re trying to do. You take lots of trades and lots of risks and don’t follow the risk-reward ratio. When you place an order it turns against you so you reverse and it turns again and again.
You may have initial success, and that is the worst part. Because it tells your brain that this really simple and you start to risk more money. You try to turn around your losses by doubling up your lot size every time. Sometimes you’ll get away with it but most of the time you will lose more and more money and at a certain time you can’t control it.
This winning streak can last for a week or two of trading but the market is usually swift and
you move on to the next stage.
Stage Two – Conscious Incompetence
Stage two is where you realize that there is more work involved in trading and that you might actually have to work a few things out. You consciously realize that you are an incompetent trader – you don’t have the skills or the insight to turn a regular profit.
Now you set about buying systems and e-books galore, read websites based everywhere from the USA to Ukraine, and begin your search for the holy grail. During this time you will be a system nomad – you will flick from one method to another day by day and week by week, never sticking with one long enough to actually see if it does work. Every time you come upon a new indicator you’ll be hoping that this is the one that will make all the difference.
You will test out automated systems on Metatrader, you’ll play with moving averages, Fibonacci lines, support & resistance, Wedges, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vain hope that your ‘magic system’ starts today. You’ll be a top and bottom picker, trying to find the exact and perfect point of reversal with your indicators and you’ll find yourself chasing losing trades and even adding to them because you are so sure you are right.
You’ll go into the live chat room and see other traders making pips and you want to know why it’s not you – you’ll ask a million questions to everyone, some of which are so dumb that looking back you feel a bit silly. You’ll then reach the point where you think all the ones who are calling pips after pips are liars – they can’t be making that amount because you’ve studied and you don’t make that, you know as much as they do and they must be lying. But they’re in there day after day and their account just grows
whilst you are losing a lot of money.
You will be like a teenager – the traders that make money will freely give you advice but you’re stubborn and think that you know the best – you fix no plan and overtrade your account even though everyone says you are mad too – but you know better. You might even approach a ‘guru’ like Rob Booker or someone on a chat board who promises to make you into a successful trader (usually for a fee of course). Whether the guru is good or not you won’t win because there is no replacement for screen time and you still think you know everything about the market.
This stage can last ages and ages – in fact, in reality, talking with other traders as well as personal experience confirms that it can easily last well over a year and more nearer 3 years. This is also the step when you are most likely to give up through sheer frustration.
Around 60% of new traders die out in the first 3 months – they give up and this is good – think about it – if trading was easy we would all be millionaires. another 20% keep going for a year and then in desperation take risks guaranteed to blow their account which of course it does.
What may surprise you is that of the remaining 20% all of them will last around 3 years – and they will think they are safe in the water – but even at 3 years only a further 5-10% will continue and go on to actually make money consistently.
By the way – they are real figures, not just some I’ve picked out of my head – so when you get to 3 years in the game don’t think it’s plain sailing from there. I’ve had many people argue with me about these time frames – funny enough, none of them have been trading for more than 3 years – if you think you know better then ask on a board for someone who’s been trading 5 years and ask them how long it takes to become fully 100% proficient. Sure I guess there will be exceptions – but I haven´t met any yet.
Eventually, you do begin to come out of this stage. You’ve probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and
all but given up maybe 3 or 4 times but now it’s in your blood One day – In a split second moment, you will enter stage 3.
Stage 3 – The Eureka Moment
Towards the end of stage 2 you begin to realize that it’s not the system that is making the difference. You realize that its actually possible to make money with a simple moving average and nothing else, if you can get your head and money management right. You start to read books on the psychology of trading and identify with the characters portrayed in those books and finally comes the “Eureka moment”.
This moment causes a new connection to be made in your brain. You suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds, never mind the next 20 mins.
Because of this revelation you stop taking any notice of what anyone thinks – what this news item will do, and what that event will do to the markets. You become an individual with your own method of trading. You start to work just one system that you mold to your own way of trading, you’re starting to get happy, confident and you define your risk threshold.
You start to take every trade that your ‘edge’ shows has a good probability of winning with proper risk reward ratio. When the trade turns bad you don’t get angry or even because you know in your head that as you couldn’t possibly predict it it isn’t your fault – as soon as you realise that the trade is bad you will close it . The next trade or the one after it or the one after that will have higher odds of success because you know your system works perfectly.
You stop looking at trading results from a trade-to-trade perspective and start to look at weekly figures knowing that one bad trade does not a poor system make. You have realized in an instant that the trading game is about one thing – consistency of your ‘edge’ and your discipline to take all the trades no matter what as you know the probabilities stack in your favor.
You learn about proper money management and leverage, risk of account etc etc – and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile. But you weren’t ready then, but you are now. The eureka moment came the moment that you truly accepted that you cannot predict the market but if you stick with a proper method then you can earn money.
Stage 4 – Conscious Competence
You are making trades whenever your system tells you to do that. You take losses just as easily as you take wins. You now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it looses and when you’re on a loser you close it without any doubt but with a little pain to your account.
You are now at a point where you break even most of the time – day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips – generally you are breaking even and not losing money ant the balance of your account remains the same. You are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you share your ideas with them and most of the times that works. You still have to work a lot about it and think about your trades but as this continues you begin to make more money than you lose consistently.
You’ll start the day on a 30 pip win, take a 35 pip loss and have no feelings that you’ve given those pips back because you know that it will come back again. You will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.
This will last about 6 months
Stage 5 – Unconscious Competence
At this stage, it is just like driving a car, every day you get in your seat and trade – you do everything now on an unconscious level. You are running on autopilot. You start to pick the really big trades and getting 200 pips in a day doesn’t make you any more excited than getting 1 pip.
You see the newbies in the forum shouting ‘go dollar go’ as if they are urging on a horse to win in the grand national and you see yourself. But many years ago, you were at that stage. But day by day you have mastered your emotions and you are now a trader with a rapidly growing account.
You’re a rising star in the trading chat room and people listen to what you say. You recognize yourself in their questions from about two years ago. You pass on your advice but you know most of it is futile because they’re teenagers and they’re not ready to listen – some of them will get to where you are – some will do it fast and others will be slower – literally dozens and dozens will never get past stage two, but a few wills and they will be the big fishes in the pond.
Trading is no longer fun and exciting – in fact, it’s probably boring you to bits – like everything in life when you get good at it or do it for your job – it gets really boring – you’re doing your job and that’s that. Finally, you grow out of the chat rooms and find a few choice people who you converse with about the markets without being influenced at all. All the time you are honing your methods to extract the maximum profit from the market without increasing risk. Your method of trading doesn’t change – it just gets better day by day– you now have what women call ‘intuition’
You can now say with your head held high “I’m a currency trader” but to be honest you don’t even bother telling anyone – it’s a job like any other and for you, now it’s quite normal. We hope you’ve enjoyed reading this journey into a trader’s mind and that hopefully you’ve identified with some points in here.
Remember that only 5% will actually make it. But the reason for that isn’t ability, it’s staying power and the ability to change your perceptions and paradigms as new information comes available.
The losers are those who wanted to ‘get rich quick’ and believe the fact of “Quick money”. But approached the market and within 6 months put on a pair of blinkers so they couldn’t see the obvious – a kind of “this is the way I see it and that’s that” scenario – refusing to assimilate new information that changes that perception.
If you’re thinking about giving up we, Price Action Family have one piece of advice for you …. Ask yourself the question “how many years would you go to college if you knew a fact that there are a million dollars a year job at the end of it?
What stage are you now? Comment down below and let us know.
And most importantly, if you’re suffering in these hectic stages then join with us. We will help you to educate yourself and help you to reach to the stage 4. So, stay with PRICE ACTION FOREX.
