The evolution of the investor and trader

The truth is that commerce has a lot in common with, for example, learning how to drive a car or anything else that requires longer learning and experience. This cycle consists of five stages. I intend to bring you closer to each stage so that you can identify exactly where you are currently on your path to trading with success. The evolution of the investor and trader is a fairly complex process.

Stage one: Unconscious incompetence

This is the first step when you start taking an interest in trading. You know it's a good way to make money because you've heard so many things about it and you know about the many millionaires who made money that way. Unfortunately, just like when you want to learn to drive a car, you think it will be easy - if you ignore that, you think "what's so hard?" - prices go up and down - what's the big secret? - I'll figure out the market in a moment!

Unfortunately, just like with a car, when you sit at the controls you will come to the conclusion that you have no idea what you are really going to do. You enter into a lot of risky trades. When a position you opened doesn't go your way, you take the opposite position and the market still doesn't go your way… and on and on. You try to recover by doubling your stakes. Sometimes you do it, but more often you lose track of yourself and get upset. So this is stage one - you are completely unaware of your Incompetence in trading. This usually takes a week or two. You go to stage two.

Stage two: Conscious incompetence

You realize that trading takes more work and there are many things you need to work on. You realize that you are an inept trader. You don't have the skills and character to make regular profits. During this stage you buy systems and lots of e-books, you wander around online trading sites. You start looking "holy grail". During this time, you become a "system hooker" - you try a different method every day and never focus long enough on one system to find out if it really works / doesn't work.

Every time you come across a new indicator you become enthusiastic - this is the one that changes everything. You test automatic systems in MetaTrader, you play based on moving averages, Fibonacci lines, levels of support and resistance, fractals, divergences, DMI, ADX and many other things. All with the hope that you will discover your own "magic system" today. You play highs and lows trying to find the exact trend reversal point using a variety of indicators. You find that you are constantly losing money even though you are sure you are doing the right thing. You go live chat and see other traders talking about their profits. You wonder why you are not one of the lucky ones. You ask millions of questions, some of them so stupid they are ridiculous (which you will only notice in the future when you remember them).

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You come to the point where you think that all those who boast about their results are mere liars and crooks. They can't earn that kind of money - you learn all the time and you don't earn. You think you know what they say and what they say are just lies. But they are here every day and the sums in their account keep growing while in yours they keep going down. You're like a teenager - traders who make money give you free advice, but you're stubborn and you think you know better. You ignore their opinion and you play even more risky, despite everyone's warning - but you know better. You follow the signals given by others. But if these don't work, you are looking for other signal sources that you pay for - but these also don't work.

This stage may last for years - but it may be a little over a year, for example - I have been through this stage for 18 months. Ultimately, this stage is behind you. You have probably wasted more time and money than you imagined. You have lost money in two or three accounts you created. You've wanted to give up 3 or 4 times and stop playing. Stage three has come.

Stage three: Eureka!

At the end of stage two, you begin to see that it's not the system that makes the difference. You notice that it is possible to earn money only by using moving averages. If you follow the principles of capital management and properly approach the matter. You start reading books on the psychology of trade and identify with the characters described in those books. There comes a moment when you can shout - EUREKA !!! That's why I used this name because of the revolution that took place in your brain. You start to think completely different than before. Suddenly you realize that apart from you, no one else can predict the movement of the price in the next 20 seconds, let alone the next 20 minutes.

You only start using one system that reflects the way you trade. You are happy and you define your own risk threshold. You open positions every time your system shows a high probability of making a profit. When the trade goes bad you don't care too much because you know you couldn't have foreseen it and it's not your fault. You close losing positions as soon as you realize they are unsuccessful. Your next transaction will be more likely to be successful because you know your simple system is working. You've realized that two things are most important in trading - consistency and discipline. You are learning properly manage capital and risk - lever etc. etc. - now you fully understand it and when you think about those who gave you advice that you are just now following, a smile appears on your face. You weren't ready then, but you are now.

The moment of EUREKA! it comes when you really accept the idea, you can not predict the behavior of the market. And then the fourth stage begins.

Stage four: Conscious competence

Ok, now you trade whenever your system is generating a signal. You acknowledge losses as easily as gains. You let your profits grow by fully accepting the risk of their possible loss. You know your system can make more money than it can lose. When you see that the position is lost, you close it quickly so that your account does not suffer much. You are now at the point where you will be making money. There will be days of success and days of failure, you will have weeks where you will make 100 pips and weeks you will lose 100 pips - you will generally earn more than lose money. You are aware that you are in most profitable positions. You gain respect in the eyes of other traders, just like you used to have for them.

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You still have to work on it and think about your trades, but you will still earn more than you lose. You start the day with 20 pips profit, then lose 35 pips but don't worry too much about it. You know you'll make them up next time. You will start making small but regular profits. One week you will make 25 pips, the next 50 pips and so on… This stage usually ends after six months, then comes phase five.

Phase five: Unconscious competence

It's like cooking or driving a car. Every day you sit in front of the computer to start trading - now you do everything unconsciously but with competence. You act like an autopilot. You make great trades earning 100 pips a day. It becomes normal for you. It's already routine. This is the trading utopia - you control your emotions and you are a trader with a rapidly growing account. You are the star of the trading chat and people are eager to read what you have to say.

You get to know yourself when you read questions similar to those you asked yourself two years ago. You pass on your knowledge to others, but you know that most of them think like teenagers. Translating certain things to such people is futile. Some of them will achieve what you have achieved - some will achieve it sooner, some later. Literally hundreds of thousands of people will never make it through Phase Two, yet many people do. Trading won't be exciting anymore. It's going to get boring - just like everything in life, when you're good at something or doing your job - it's boring. You just do your job, what belongs to you. That's all.

Now you can say with your head held high, "I am a trader. I trade currencies. "

Author: unknown