Back in 1969 when my buddies and I were still vibing to The Beatles’ Hey Jude, management trainer, Martin Broadwell, talked about the “four levels of teaching” to describe the work that needs to be done to learn a skill.
Broadwell discussed teaching, but his ideas about competence levels became popular in psychology and self-development circles.
What are these “levels of competence” and can they be applied to your forex trading journey?
Level 1: Unconscious incompetence
It may sound like a fancy insult, but this just means that you don’t know yet how unknowledgeable you are about the subject.
You’ve probably heard about forex trading and think, “It’s just like trading stocks. How bad could it be?”
So, you open an account and bet 10% on your first EUR/USD trade. You make serious $$$ so you do it again, this time on AUD/USD just for the lolz.
You lose all you’ve gained on EUR/USD and more, so you slap on an SMA to help you decide on a direction.
This goes on for a while until you realize that your wins may be credited to luck more than skill. Heck, you may even be in the red! And you can’t even call your losses “education fee” because you haven’t learned anything that could earn you consistent profits.
Level 2: Conscious incompetence
This is where you realize that “easy peazy lemon squeezy” may actually be “difficult difficult lemon difficult.”
You’re still not knowledgeable, but at least now you know it and are taking action to improve your end results.
You try to learn about fundamental and technical analyses and common market conditions. You try out different indicators and time frames and use a trading journal to document their success rates.
You profile individual currencies and how they react to economic catalysts. Last but not least, you play around with strategies until you find a system that fits your trading personality and risk tolerance.
You will fail a lot (and burn accounts?) at this stage, but you will also learn.
Level 3: Conscious competence
At this point, you have an idea of what works for you and what doesn’t.
But while you’ve acquired the tools and skills to make profits, you still need conscious effort to achieve consistent results.
You probably have several profitable strategies in your playbook but continue to consult your trading journal to confirm which plays to use.
You’ve developed strict risk management rules but struggle to follow them when you’re gripped by fear and greed.
Your trading journal remains your best friend. This time, though, you’re more interested in consistent execution rather than consistent wins because you know that you can still be profitable even when you lose trades.
Level 4: Unconscious competence
No, this doesn’t mean that you’ve knocked yourself unconscious trying to acquire discipline.
In the “unconscious competence” stage, trading will feel automatic to you.
You’ve seen hundreds of patterns that you can now identify market conditions and choose strategies after ten minutes of reading.
You’ve managed your risks so often that choosing a Netflix show takes more brainpower than position sizing and cutting losses.
You know your system so well that you’ll recognize when it’s not getting the same results and it’s time to make some tweaks.
In this last stage, your rules become habits and your execution is guided by “feel” rather than conscious effort. Making consistent profits is second nature to you.
Competence is NOT mastery
Just like perfecting three skill moves won’t win you a World Cup, being a competent trader is just a step to being an elite trader.
If you want to grow your account beyond your basic needs, you’re gonna have to challenge yourself harder, learn a little faster, and practice a little more deliberately.
But this is a talk for another day. For now, at which stage do you think you are in your trading journey?