The “four stages of competence” psychology model was created by management trainer Martin Broadwell back in 1969. It is used to describe the different kinds of psychological states one goes through when progressing from incompetence to competence with a skill. While this widely popular psychological guideline can be applied to a variety of different skills, it is especially useful when describing what one goes through on the journey from a forex novice to a truly competent trader. Stay with us as we explain each of the four stages and how they apply to traders.
Stage 1: Unconscious Incompetence
This stage is simply a fancy way of saying that you don’t know much about what you’re doing, which applies to pretty much any skill you try for the first time, from playing an instrument to opening a trading account. Even if you have some trading activity under your belt, you’re likely still in this stage if you haven’t done much research and don’t put much thought into what you’re doing. Maybe you made a big bet and won so you keep it up, without realizing that your winnings are due more to coincidental luck than they are to your own competence of trading. You might even have the mindset that trading is easy because you don’t fully understand everything that goes into making smart trading decisions just yet.
Stage 2: Conscious Incompetence
In this stage, you might actually realize that trading is harder than you thought. Perhaps simply reading this article has brought you to the stage of conscience incompetence! You still aren’t very knowledgeable about trading in this stage, but this is where you admit that and start making an effort to learn more about what you’re doing. When it comes to trading, you might pay more attention to fundamental or technical analysis, test different indicators, start keeping a trading journal and spend more time doing general research about trading. As you progress through this learning stage, you should be able to find a strategy that actually works for you before moving on to the next stage of competence.
Stage 3: Conscious Competence
By the time you reach this stage, you will have spent enough time learning and testing out strategies to have a good idea of what does and doesn’t work for you. This doesn’t mean you’ve achieved perfection, but you likely have a detailed trading journal right beside you with an idea of different profitable strategies you could use and you’ll have implemented risk-management rules you intend to follow. While you may have issues following these rules exactly, this stage is about progress and you should be able to keep a clear head when losing trades while understanding that consistent execution is better than simply winning trades. During this stage, you may put in extra thought and overanalyze things in an effort to make better trading decisions.
Stage 4: Unconscious Competence
Once you reach this stage, you’ll switch into autopilot when you’re trading. Think of when you first started driving, how you were probably aware of your exact speed or how you had to remind yourself to turn on your car’s headlights at night. Later on, you become so used to driving that you switch on your headlights without consciously thinking of it or you look down and realize you’ve been speeding without realizing it. This stage of trading works in the same way – you can identify trends and patterns efficiently without much thought, you get good or bad feelings about trades that you should enter, and you know when something needs to be changed when it comes to your strategy. At this point, you don’t have to put conscious effort into trading because it comes to you naturally. However, you should remember that a trader’s work is never done, so don’t make the mistake of assuming that you’ve mastered trading once you reach this stage. Never stop pursuing knowledge and don’t make the mistake of becoming overconfident.
Now that you’ve learned about the four stages of trading competence, which stage do you think you fall under? Perhaps this can shed some light on what you need to do as a trader to move on to the final stage.