SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

5 Stages Traders Go Through


There are 5 stages every trader will go through over the years. You can’t skip one and knowing which one you are in and being totally honest with yourself is essential. Excellent post from our friends at Tradeciety. Which stage are you at right now? Try to answer this question as best and honest as you can. 

Unconscious incompetence

 

This is the initial phase of a new trader when he is just getting his feet wet in the markets and looks at his trading platform for the first time. At that stage, a trader doesn’t know how much he doesn’t know, which can often be a liberating, but dangerous place to be in.

 

His trading decisions are pretty much still a gamble and not backed by a sophisticated decision-making process; although the unconscious incompetent trader will never admit that – he doesn’t know any better yet.

 

A few characteristics of the unconscious incompetent trader:

  • He randomly opens and exits trades without a defined trading system
  • He changes his “approach” on a trade to trade basis
  • He does not apply risk management or position sizing principles
  • He often changes his trade direction on the spot and chases price
  • He gets motivated by winning trades and does not care much about losses
  • Beginners luck is what keeps him going
  • One loss often wipes out all previous wins

At this stage, the traders with beginners luck are more likely to keep going and make it to the next stage. Often, however, traders lose money, get easily discouraged and acknowledge that trading isn’t as easy as clicking a mouse.

 

Conscious incompetence

 

Now it dawns on the trader how little he knows and he starts to understand that he has to put in the work and study more. Motivated by a few lucky winners, he studies everything he can get his hands on.

 

A trader who still loses money consistently, even after spending a lot of time learning about trading, will often start blaming his tools, the wrong indicators, missing information or unfair markets; he is looking for external excuses.

 

This stage of conscious incompetence is the one that lasts the longest. Some traders will never leave this stage, even after years of being involved in the markets. A few principles and questions can make you aware of potential problems in your trading mindset and general approach:

  • Have I changed my trading system more than once in the last 6 months without really putting in the work?
  • Am I actively reviewing my trades to find out what is going wrong?
  • Am I still making impulsive trading mistakes that cost a lot of money?
  • Do I repeat the same trading mistakes over and over again?

Sit down and try to answer these questions. Be honest with yourself even if the truth hurts. Lying to yourself will keep you trapped in your current state and you won’t be able to improve and evolve as a trader.

 

The Aha moment

 

It sounds cliché but this is the time when the trader accepts responsibility for his actions. He understands that all his past mistakes and false behavior will not get him anywhere. If a trader is really serious about making this work, there is typically only one way and the following principles describe the “new” mindset:

  • He stops changing systems and focuses on making the one he has work
  • He starts monitoring his behavior to find negative behavioral patterns
  • He follows a daily trading routine, starts keeping a trading plan and a trading journal
  • He understands that entries are just one part of his system and that, in order to become profitable, he has to work on all components of his system

 

5stages-1-768x1106.png

 

Conscious competence

 

The trader now starts to realize what trading is all about. Although trading is still not easy and his results are far from being perfect, he understands the importance of process-oriented thinking. He stops focusing on only the outcome of his trades.

 

Traders at this stage are typically break-even traders and slowly start to turn their equity graph up. Discipline, emotions and adequate risk management are of utmost importance at this stage and a long-term approach will keep the trader from falling back into old habits.

 

The trading journal becomes his most important companion at this stage because it provides an objective look at his performance and behavior. Traders at this stage are very likely to make it to the next and final stage. They can see that their work is starting to pay off, they stop system hopping and focus on their process-oiented approach.

 

Unconscious competence

 

This is when trading becomes boring – and trading should be boring! At this stage, the trader has spent years of looking at screens and taking the same setups hundreds or even thousands of times. He knows exactly how his preferred setup looks like and trading becomes a waiting game.

 

At this stage, the trader has fully internalized that he can’t win every trade and, more importantly, he does not really care about losses as long as he has followed his rules. Trading is now an activity of pattern recognition, risk management and constant self-improvement.

 

The unconscious competent trader has a thirst for self-improvement and constantly studies the markets. He evaluates the effectiveness of his method and he is driven by the success and his improvements so far.

 

Which stage are you at right now?

 

Being a trader is a life-long journey of self-improvement and self-discovery. The markets teach you something about yourself every day. In fact, a trading plan that makes money for a trader is simply the extension of his own personality with all its qualities and imperfections.

 

Your task right now – if you are not a consistently profitable trader yet – is to sit down and take a deep look at yourself. Then try to answer the following question: which stage are you at right now?

 

Try to answer this question as best and honest as you can. The moment you answer this question, and draw the consequences from it, you will be on your path to improving your trading bit by bit until one day you will finally reach controlled profitability.

 

This article has been published originally on Edgewonk.com – Tradeciety’s partner site: original article here.

 

Related articles

 

If you are ready to start your journey AND make a long term commitment to be a student of the markets:

 


Start Your Free Trial

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Investors Are Not As Smart As The Media Thinks

    Over the last decade there has been a substantial rise in proclamations such as “investment advisors are useless,” “manage your own assets,” “don’t pay for financial advice,” and other similar sentiments. 

    By cwelsh,

    • 0 comments
    • 88 views
  • Should You Close Short Options On Expiration Friday?

    Options traders spend a lot of time trying to figure out the perfect moment to open a trade; but little attention is devoted to the other side of the transaction. When should you close? This applies equally to long and short positions. However, one aspect of short timing concerns expiration Friday.

    By Michael C. Thomsett,

    • 0 comments
    • 263 views
  • 8 Strategies For High Volatility Markets

    Trading in high-vol environments requires a different approach from low-vol markets. Here are 8 strategies to improve your trading and help you to survive in high volatility markets. They are very different from strategies in low volatility environment.

    By TFCAB,

    • 0 comments
    • 135 views
  • Selling Options Premium: Myths Vs. Reality

    Selling Options Premium refers to certain set of strategies that involve net selling of options, as opposed to buying premium where you are net buyer of options. There are a lot of myths and misconceptions about Selling Options Premium. This article will explain the basic concepts and debunk some of the myths.

    By Kim,

    • 0 comments
    • 594 views
  • Combining Momentum and Put Selling (Updated)

    In February of 2017, I wrote an article about combining together the concepts of momentum and put selling. You can find that article here as prerequisite reading. With this post, we'll look at how the strategy presented has done since then, along with some additional implementation ideas.

    By Jesse,

    • 2 comments
    • 446 views
  • Options and Invisible Risks

    Entry and exit timing is crucial to successful options trading, without doubt. However, one form of risk not often acknowledged is the risk of taking too many actions, too soon, and for the wrong reasons.

    By Michael C. Thomsett,

    • 0 comments
    • 488 views
  • The Volatility Option Trade In Alibaba

    This is why you have a Trade Machine membership. We can ride the evergreen patterns, and we have, for years. But when the market shifts, we need a minimum amount of data to adjust, and succeed -- now we will. This is our time.

    By Ophir Gottlieb,

    • 0 comments
    • 708 views
  • James Cordier: Another Options Selling Firm Goes Bust

    On November 1, 2018, a money manager named James Cordier from OptionSellers.com published an article on Seeking Alpha named Option Selling Opportunities So Good They're Scary. To me, this title alone would be enough to completely discredit the author and not trust him with my hard earned money.

    By Kim,

    • 10 comments
    • 4,905 views
  • Do You Have a Written Investment Plan?

    Meb Faber recently polled his twitter followers, and found that only about 25% have a written investment plan. Your investment plan should be based on your willingness (risk tolerance) and need (required rate of return to meet your long term goals) to take risk. 

    By Jesse,

    • 0 comments
    • 528 views
  • Options Delta And Other Greeks

    The most worthwhile of the "Greeks" for options trading (and specifically for timing of trades) is options delta. This indicator looks at likely change in option value relative to change in the value of the underlying. The higher the delta level, the more likely the premium will move more than movement in the same direction for the underlying.

    By Michael C. Thomsett,

    • 0 comments
    • 632 views

  Report Article

We want to hear from you!


There are no comments to display.



Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs