Hi, I stumbled on this article in my research after loosing some cash in my demo account (started intentionally with $300 to about $57 in 2 weeks). I realised this article sumed up what I and most other newbie traders undergo. I've climbed through phases 1-3 and expect to move on to 4 5 very soon. Please enjoy this....
(Courtesy: Soultrader)
Step One: Unconscious Incompetence.
Here is the first step you take when beginning to research trading. You know that its a fantastic method of earning money cos you've heard so many things about it and learned of numerous millionaires.Unfortunately, just like when you first want to drive a car you think it's going to be easy - after all, how hard can it be?? - price either goes up or down - what is the big secret to this then - lets get cracking!
Regrettably, just as when you initially take your place before a steering wheel you find very quickly that you have not got the first clue what you are trying to do. You take lots of transactions and lots of risks. When you enter a transaction it turns against you so you undo and it turns again . . and again, and again.
You try to turn around your losses by simply doubling up every single time you trade - sometimes you will get away with it but more often than not you'll come off shed and bruised
Well this is phase one - you are totally oblivious to your incompetence at trading.Stage an individual can last for a couple weeks of trading however the market is usually swift and you proceed onto phase two.
Stage 2 - Conscious Incompetence
Stage two is where you realise that there's more work involved in this and that you might actually have to work a few things out.
You knowingly realise that you are an incompetent trader - you don't have the skills or the insight to turn a normal profit.
During this phase you may buy systems and e-books galore, browse sites based everywhere from Russia to the Ukraine. And start your search.
During this period you'll be a system whore - you may flick from method to process day by day and week by week never sticking with a long enough to really determine if it does operate. Every single time you arrived upon a new indior you'll be thrilled that this really is the one which is going to make all the difference.
You may test out automated progr on Meta-trader, you are going to play with moving averages, Fibonacci lines, service resistance, Pivots, Fractals, Divergence, DMI, ADX, along with a hundred other things in the vein hope your 'magical system' starts today.
You'll be a top and bottom picker, trying to find the exact point of reversal along with your indiors and you will end up chasing losing transactions and even adding to them cos you are so sure you are right.
You'll go into the live chat area and see different traders making pips and you also wish to learn why it's not you - you will ask a million questions, some of which are so dumb that awaiting you feel somewhat silly. You'll then reach the point where you think all the individuals that are calling pips after pips are liars - they'll be making this amount cos you've studied and you don't make that, you understand as much as they do and they have to be lying. But they're in there day after their account just grows whilst yours drops.
You will be like a teenager - the traders which make money will openly offer you advice but you are stubborn and believe you know best - you simply take no notice and over leverage your account although everybody says you are mad to - but you understand better.
You'll consider after the calls others make but then it wont work so you try paying for signals from someone else - they don't work for you.
This phase can last ages and ages - in fact in reality it could last well over a year - My own period lasted about 18 months.
Eventually you do start to come from this phase. You've probably committed more time and money than you ever thought you'd, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times.
Then comes phase 3
Stage 3 - The Eureka Moment
near the end of point two you start to realise that it isn't the system that's producing the difference.
You realise its really possible to make money with a simple moving average and nothing else if you're able to get your head and cash management right
You start to read books on the plogy of gambling and also identify with the characters portrayed in those novels.
Finally includes the eureka moment.
The eureka moment causes a new connection to be made in your brain.
You suddenly realise that neither you, nor anyone else can accurately predict what the market is going to do in the next ten seconds, never mind the next 20 mins.
You start to work just one system which you mold to your own method of trading, you are beginning to get happy and you specify your own risk threshold.
You start to take every transaction your 'advantage' reveals has a great probability of winning with.
Once the trade turns bad you don't get mad or even because you know in mind that as you could not possibly predict it it isn't your fault - when you realize that the trade is bad you shut it . The following trade will have higher likelihood of success cos you understand your simple system functions.
You've realised at an instant the trading game is about one thing - balancing of your 'border' and your discipline to take all transactions no matter what.
You know about proper cash management and leverage - risk of account etc etc - and this time it really soaks in and you think back to those who advised the same thing a year ago with a smile
you were not ready then, however you are now.
The eureka moment came the moment that you accepted that you can't predict the market.
Then comes point four
Stage 4 - minute Competence
Ok, now you are making transactions whenever your system tells you.
You take losses just as readily as you take wins
at this point you let your winners run to their decision fully accepting the risk and knowing your system makes more money than it wins and when you are on a loser you shut it swiftly with little pain for your account
You are now at a place where you break even the majority of the time - day in day out, you'll have weeks in which you make 100 pips and months where you shed 100 pips - generally you are breaking even and not losing cash.
You are actually aware of how you are making calls which are generally great and you are getting respect from other traders as you chat the day off.
Which you still must work at it and think about your transactions but as this continues you start to earn more income than you lose consistently.
You'll start the day on a 20 pip win, take a 35 pip loss and have no feelings which you've given those pips back because you know it is going to come back again.
You may now start to earn consistent pips week in and week out 25 pips weekly, 50 the next and so on.
This lasts about 6 months
afterward comes Period Five
Stage Five - Unconscious Competence
Now were cooking - just like driving a car, daily you get in your seat and exchange - you do everything now in an unconscious level.
You are operating on autopilot. You start to select the very big trades and obtaining 100 pips in a day is growing quite normal for you.
That is trading utopia - you've mastered your emotions and you are now a trader using a rapidly growing account.
You are a star in the trading chat area and people listen to everything you state. You recognise yourself from about two years ago.
You pass in your advice but you understand most of it's futile cos they're teenagers - some of them are going to get to where you are - some will take action quickly and others will be slower - literally dozens and dozens won't ever get beyond stage two but a few will.
Trading is not exciting - in fact it's probably boring you to bits - enjoy everything in life when you get good at it or perform it for your task - it becomes boring - you are doing your job and that's that.
You can now state with your head held high I'm a currency trader
Thanks Mr. Soultrader!
Hope this was helpful.