The path to becoming a good trader

Nov 12, 2022

When a beginner learns to trade, they progress through stages as they develop their mindset.

The most commonly used learning model for trading is an adaptation of the 3 stages of competence model.

1. Unprofitable trader
This is the first stage that a trader goes through and they do not know that they have a lack of knowledge. In this stage, beginner traders will take their first few steps by downloading a platform, opening an account and begin to place trades.

However, they are influenced by emotion – usually lured by the thought of making a great deal of money in a short period of time.

Either one of two things are likely to happen for traders in this stage:

The trades turns against the trader immediately. They simply lack the experience to deal with the market environment.
New traders take large risks without a basic knowledge of risk management and they wipe out all previous profits and more.

2. Boom and bust trader
Boom and bust traders will realise that successful trading comes down to the psychology of the trader and their approach to the markets.

A basic understanding that you will never be able to predict what will happen in the markets, starts to form. You begin to realise that making money is based on a series of trades that incorporate winners and losers, and that it takes discipline to stick to a system, cut losses short and let profits run.

A trader in this stage will begin to enter and exit the markets whenever their system tells them to, without judgement and despite the emotion they are feeling.

3. Profitable trader
A trader is said to have reached the stage of unconscious competence once they have traded with so much practice that they are able to trade in an almost automatic mindset.

A disciplined approach requires very little effort and has become second nature.

At what stage are you at the moment?