The 5 Levels of Trading

Here is an interesting article that I had found on the net. Unfortunately, I've no info on the author, so I am not able to give due credit.

Nonetheless, there are lots of gems in it, especially for those of you who do have aspirations to be trading one day.

Enjoy your read from this "anon" author!

Step One: Unconscious Incompetence

This is the first step you take when starting to look into trading. You know that it’s
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 - because 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 to 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 profit. 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
won’t 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 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 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. The 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
minutes.

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 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 works. 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. - 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 became the moment that you
truly accepted that you cannot predict the market.

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 lose consistently. 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. During this 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 that’s 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?