Psychologically speaking, there are 4 levels of forex trading that describe a trader's skill level. Which one do you belong to?
In 1969, Martin Broadwell, a self-development expert and author introduced "The Four Stages of Learning" method to identify an individual's skill level or competency. This method can also provide an overview of what must be done to achieve a certain skill level.
Broadwell's "The Four Stages of Learning" method in psychology and self-development is widely used to explore an individual's skills due to its simple model.
Broadwell's method can also be used to determine a trader's level of forex trading skills. Let's explore the 4 levels of forex trading based on Martin Broadwell's "The Four Stages of Learning" method.
The first level of forex trading is unconscious incompetence. In short, this level describes a person's unawareness of their ability to trade. This means that you are completely unaware of forex trading at this stage. According to Broadwell, this stage is the initial level of an individual just beginning to learn something new.
Indicators that show a person is at the level of unconscious incompetence include ignorance of the basics of forex trading. There is an illustration that describes a person at the level of unconscious incompetence, which is:
You open a trading account and risk 10 percent on trading EUR/USD. Then, you make a certain amount of profit from that trade.
Next, you trade again on the forex pair AUD/USD. However, you lose all the profit you made from EUR/USD. So, you start using SMA to help you project the direction of a price.
Usually, a trader at the level of unconscious incompetence also believes that trading success is related to luck rather than skill. You may even consider trading losses as "tuition fees" because you have not yet learned how to make profits consistently.
The next level of forex trading is conscious incompetence, a psychological level where individuals know they are not skilled. Unlike level 1, level 2 can be considered a step up. You still have limited knowledge at this level, but at least you know what forex trading is and how to play it.
In addition, traders at this level usually have learned about the profile of each forex pair and its reaction to economic catalysts. You have also tried playing around with strategies and risk tolerance until you find a trading system that suits your personality.
If you are at this level, you may experience some failures leading to drawdowns. However, you have improved by trying to learn the ins and outs of forex trading and how to do it. So, you are no longer as directionless as at the level of unconscious incompetence.
Moving up to the next level in forex trading is conscious competence. At this level, you already know what works for you and what doesn't. Although you know how to make profits from trading, you still need to work hard to achieve consistent results.
You may already have some profitable strategies, trading notes, or a journal at this level. In this case, the trading journal is like a best friend and trading mentor because it can help you determine which trading system to use.
If you have reached conscious competence, you are better at developing risk management strategies. However, you still have to work hard to apply them because fear and greed often dominate you.
The level of unconscious competence means that a trader is unconsciously competent. At this level, you already understand hundreds of trading chart patterns to identify market conditions, choose a strategy after just 10 minutes of learning, and manage risks thousands of times.
In addition, at this level, you already know the strength of the trading system used and know when to adjust it. At this highest level, trading is already like your daily habit. Your trading execution is guided by "feeling" and consistently generating profits daily.
Although reaching the highest level of forex trading does not automatically make you a successful trader, mastering the four levels described above is the first step to becoming a professional forex trader. If you want to develop a career in the trading world, you must learn a lot and practice harder.
Don't worry and rush. The learning process in trading can only be done gradually. For now, improve your skills until you are truly proficient. After that, you can start learning to become a professional trader.
Regarding trading, you should also choose a broker suitable for your trading level. For example, a beginner might want cheaper brokers. But, professional traders need a broker to cater to their unique needs.