Stages of a trader’s competence

Njabulo NsibandeLatest, Village Trader

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Unconscious competence (DALL·E 2)

It’s said that there are four stages of competence in developing any skill

  • Unconscious incompetence
  • Conscious incompetence
  • Conscious competence
  • Unconscious competence

Trading is no different. Often a trader’s equity curve over long periods will help to discern which competence category they are currently in.

Unfortunately, the ‘how-to transition between stages’ part is often missing. This article aims to fill that gap by looking at how I transitioned.

From unconscious to conscious incompetence

This progression mainly involves awareness and being honest with oneself. There isn’t much of a trick or task to do – it’s simply being aware of your incompetence. This transforms you from unconscious incompetence to conscious incompetence. This progression doesn’t change anything for the trader, but it’s an important first step in the right direction.

What really matters here is what you do with the discovery. Trading is a complex psychological sport, and it’s possible to stay in the first phase despite brief moments of realisation. Our minds are good at coming up with excuses and tricks to keep us stuck in certain states.

From conscious incompetence to conscious competence 

This is where the rubber hits the road. The first and most important step is deciding and committing to becoming a competent trader

But very important: A declaration of commitment is not the same as commitment. Many get stuck chasing their tail because they confuse declaring commitment with an actual commitment to becoming a competent trader. I know this because I was stuck chasing my tail for a long time until I actually committed.

Looking back, the most important thing I did was to “empty my cup”. I had to let go of all my half-baked ideas about how to trade. Those were hindering me. And in the words of Einstein: “You can’t solve problems with the same thinking that created them.”

Filling my cup

There’s a saying in Zulu “Indlela ibuzwa kwabaphambili” which means those who have gone before us are the ones who can show the path. Listening to competent traders it became clear to me that the number one skill they all have in common is discipline. That’s the first thing that went into my cup.

Discipline is doing the things that have to be done even when you don’t feel like it or have conflicting thoughts and emotions.

To learn how to be disciplined, I sought out a simple mechanical rules-based trading system to remove myself from the market analysis and decision-making process. Doing this placed me straight into the execution part. My goal was to trade the system with discipline – no matter what I thought or felt at the time. I decided to trade Simon’s 7/21 System, because of its simplicity and I aimed for one perfect trade at a time. Through that process, I learned to be regimented and disciplined.

This laid a solid foundation for what would be my style of trading. The next thing that went into my cup, was learning to develop my own “thing”, my own swing.

Developing me

I started learning my way of market analysis and picking trades by spending hours and hours daily looking at charts and building ideas, questioning those ideas, and seeking help with them. Slowly but surely I was building confidence in my own swing, and I started to let go of the system I adopted to learn discipline, to be disciplined by the system I was creating.

When I started trading my own thing I ran into a terrible market environment. But I regard it as a stroke of luck. My system started with a string of losses. Painful to my ego as that was, I was determined to see it through – and this was the best thing that could’ve happened. It desensitised me to losing streaks, and reinforced the importance of discipline in money management.

Without my conscious awareness, I was becoming consciously competent. It took me quite a while to build confidence and feel that I was competent as a trader, as I always felt I still need to learn some more.

Hello unconscious competence

The next phase of my development is what transitioned me to unconscious competence. I learned about the psychology of trading, and I started to understand myself more as a person and as a trader. It was at this point that I learned what trading really is: It’s a psychological game where the markets account for 10%, and the rest is pure psychology (with money as the scorecard). Through this learning process, I developed the skill that moves one to unconscious competence, confidently.

I feel that I’ve reached unconscious competence in my trading career. Because I know what to do, when to do it, and I’m able to do it with confidence. But don’t get me wrong, my journey is still ongoing. Trading is both a game and a journey, and mine still has a long way to go.

In closing

To wrap up, I learned that the below bullets are the most important things to understand to become competent as a trader.

  • Discipline
  • Market analysis
  • Risk, money and self-management
  • Psychology
  • Confidence

Here are some books that had a big impact on me:

  • Trading In The Zone & The Disciplined Trader – Mark Douglas
  • Trading For A Living – Alexander Elder
  • How I Made $2 Million In The Stock Market – Nicolas Darvas
  • Market Wizards – Jack Schwager
  • Reminiscences Of A Stock Operator – Edwin Levref
  • Thinking In Bets – Annie Duke

And check out this Bootcamp master series.

Every year my goal is to become a better trader than I was before, and this year is no different. Transforming through the different stages of competence is hard for any skill – and trading isn’t different. I hope this article provided some helpful ideas.

Njabulo Kelvin NsibandeTraders share a peculiar characteristic: they’re fiercely competitive, but only with themselves. In practice this means that they see every outcome as an opportunity to learn, and they’re brutally honest about both their failures and successes. This also means that they’re hungry for knowledge. They don’t sleep easy with unanswered questions. And they’re seldom satisfied with just one answer.

Njabulo Nsibande is a founder of Village Trader, and Sakha Ingcebo investment club. His interest in trading began in 2016, alongside a rash of Instagram ‘fx traders’…

Find him on Twitter: @njabulo_goje.