Note: Do not know who is the original writer of this legendary article
Who ever it is “We salute you”
Step One: Unconscious Incompetence
This is the first step you take when starting to look into trading. You know that its a
good way of making money because you’ve heard so many things about it and heard
of so many millionaires. Unfortunately, just like when you first desire to drive a car
you think it will be easy – after all, how hard can it be? Price either moves up or
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 clue about what you’re trying to do.
You take lots of trades and lots of risks. When you enter a trade it turns against you
so you reverse and it turns again and again, and again.
You may have initial success, and that’s even worse – cos it tells your brain that this
really is simple and you start to risk more money.
You try to turn around your losses by doubling up every time you trade. Sometimes
you’ll get away with it but more often than not you will come away scathed and
bruised You are totally oblivious to your incompetence at trading.
This step can last for a week or two of trading but the market is usually swift and
you move on the next stage.
Step Two – Conscious Incompetence
Step 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
You now set about buying systems and e-books galore, read websites based
everywhere from USA to the Ukraine and begin your search for the holy grail. During
this time you will be a system nomad – you will flick from method to method 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 ecstatic 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, Pivots, Fractals, Divergence, DMI,
ADX, and a hundred other things all in the vein hope that your ‘magic system’ starts
today. You’ll be a top and bottom picker, trying to find the exact 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, 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 yours falls.
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 best – you take no notice and overtrade
your account even though everyone says you are mad to – but you know better.
You’ll consider following the calls that others make but even then it wont work so
you try paying for signals from someone else – they don’t work for you either.
You might even approach a ‘guru’ like Rob Booker or someone on a chat board who
promises to make you into a 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 best.
This step 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
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 its plain sailing from there.
I’ve had many people argue with me about these timescales – funny enough none of
them have been trading for more that 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 to the
rule – but i haven’t met any yet.
Eventually you do begin to come out of this phase. 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 its in your blood
One day – In a split second moment you will enter stage 3.
Step 3 – The Eureka Moment
Towards the end of stage two 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 eureka moment causes a new connection to be made in your brain. You
suddenly realize 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 and you define your risk threshold.
You start to take every trade that your ‘edge’ shows has a good probability of
winning with. 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 realize that the trade is bad you 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
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. You weren’t ready then, but you are now. The eureka
moment came the moment that you truly accepted that you cannot predict the
Step 4 – Conscious Competence
You are making trades whenever your system tells you to. 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 swiftly with 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. 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 chat the day away. You still have to work at it and think
about your trades but as this continues you begin to make more money than you
You’ll start the day on a 20 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 lasts about 6 months
Step Five – Unconscious Competence
Now we’re cooking – 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 that getting 1 pips.
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 now.
This is trading utopia – you have mastered your emotions and you are now a trader
with a rapidly growing account.
You’re a 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 – 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 will.
Trading is no longer 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 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 – 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.
I hope you’ve enjoyed reading this journey into a traders 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, its
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’ 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 thats that” scenario – refusing to assimilate new
information that changes that perception.
I’m happy to tell you that the reason i started trading was because of the ‘get rich
quick’ mindset. Just that now i see it as ‘get rich slow’
If you’re thinking about giving up i have one piece of advice for you ….
Ask yourself the question “how many years would you go to college if you knew for a
fact that there was a million dollars a year job at the end of it?
Take care and good trading to you all.