5 Phases Every Trader Must Go Through Before Becoming Successful

A successful trading is a journey and there are phases through which you need to make this journey. It is important to realize the phase which you are in. Here, I discuss that a trader must go through in order to make successful career in trading

Wed Feb 2, 2022

(4 minute read)
A successful trading is a journey and there are phases through which you need to make this journey. It is important to realize the phase which you are in. Here, I discuss that a trader must go through in order to make successful career in trading

Phase One: Unconscious and Incompetence.

This is the phase in which you start to look into trading. You have heard that there is something called as stock market and people make a lot of money from it. You have heard so many success stories as well and you think think that you can also make fortune out of it? You tell yourself, How hard can it be? Market can either go up or go down. Let's crack the code!
You open a Demat account and sit in front of your screen. You now have no idea about what do do? how to take trade? how to manage it? You take trades simply on the basis of your gut feeling, brokers' recommendations, friend's advise, news paper analysis etc. You take many trades and you take lot of risks.
Whenever you take trade, it turns against you. You book the loss and reverse the position. It again turns against.
You may have some initial success. Beginners' luck that we call. That's actually even worse because you start feeling that trading is very easy and you risk more. More than often, you will lose in most of the cases than you win.
In this phase, you are not competent and you are also not conscious about your incompetence.
During this phase, there comes one trade that gives you a very big loss and that PUSHES you to phase 2.

Phase 2 : Conscious Incompetence

The BIG LOSS in phase one makes you realize that IT IS NOT SO EASY to make consistent money in the market and you become CONSCIOUS that you are INCOMPETENT to trade with existing knowledge and skills.
You now go through all those E-books, courses, websites, blogs etc. on trading in quench of your knowledge. Here, you will come to know about technical analysis, indicators, oscillators, Fibonacci, RSI, MACD, candlesticks, Pivot, ADX, moving averages and what not.
You will hop from system to system and indicator to indicator. You will try to look for that holy grail indicator, the perfect timeframe that will open the Gold Mine for you but whatever you do, nothing works. You are still the same trader with the same losing account. You try to catch tops and bottoms in the market but the more you do, the more losses you make and you don't know why after following all those FAMOUS systems you are not able to make money.
You see all those traders who post their profits in chat rooms/forums and you call them liars. You think that they can not make the money because are not able to make.
You are still incompetent but you think that you know everything and you plainly ignore all those advises on risk management and psychology that senior traders give because you have become a system nomad.
This phase can last for years without proper guidance. Normally, it will take almost 3 years to come out of this phase and studies suggest that more than 60% of them will have quit trading by the time they reach third phase.
You will eventually come out of this phase. You would have blown 2-3 fat accounts by this time and given up 4-5 times.
One fine day, you suddenly enter Phase 3

Phase 3: The Eureka Moment

At the end of phase 2, you will slowly realize that the SYSTEM itself can't make you money. You realize that it is possible to make consistent money in the market with a SIMPLE SYSTEM if you can keep your emotions and risk management right.
You start reading books on trading psychology and you realize that nobody can predict the market with certainty.
You decide to stick to only one system and try to shape it. You make a complete trading system with defined entry, exit, stoploss, risk management, position sizing etc. You backtest your strategy to find out its edge.
You now put your trades without second thought that your 'edge' shows has good probability of winning. When trade goes against you, you simply take it because at the back of mind, you know that nobody can predict it, so its NOT YOUR FAULT. You know that your 'edge' will play its role in long run and make you a consistent winner.
You don't judge your system based on individual trades moreover, you look to trade long enough for law of average to work in your favor. You don't look at daily/weekly figures, You study monthly and quarterly figures.
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 and master money management, position sizing, pyramiding, risk management, psychology etc..
The eureka moment makes you realize that 'you cannot predict the market' and hence 'you don't try to predict either'.

Phase 4: Conscious Competence

Its almost 5 years that you have been trading and you have now become matured. You have a system that has an edge, solid money management plan and strict discipline to trade. You make trades whenever your system tells you to. You take losses as enthusiastically as you take profits. You know that your SYSTEM makes money in long run so you do not pay much attention to individual outcomes. You are conscious of the fact that you are competent to make consistent income through trading. You may more attention to following rules of the system rather than earning money.
Even if you earn 50 bucks at the start of the day and lose 80 at the end, you don't regret because you know that these losses are part of the game and they will eventually come back to you.

Phase 5: Unconscious Competence

You are on unconscious mode just like you drive car back and forth to the office. You unconsciously sit in the car, keep hands on steering wheel, your feet automatically press clutch, break and gear and your hands automatically change the gears.
You are running on autopilot.
Same happens to trading as well. You sit in front of your screen, put trades, take profits, take losses, logs off the system and there you go.
Trading is no longer exciting. In fact it is boring for you like 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.
You can now say with head held high that 'Yes, I am a successful trader'.
Only 5% would reach to this stage.
Trader in Phase 1 thinks about 'get rich quick' but the trader in Phase 5 see it as 'get rich slow'
That's it folks. Hope you can identify yourself in one of these phases. Do let me know in which phase you currently are?
See you!

Dr. Abhijeet Birari
Expert, Trader, Trainer

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