Stages of Competence is a psychological learning concept used to explain the process one goes through from learning a new skill or behavior to becoming proficient at it. This concept, which is directly applicable to trading psychology, comprises four distinct stages.
The first stage is Unconscious Incompetence, where the person is unaware of their inability or poor performance in a specific skill—trading in this context. It’s a stage of ignorance, where they don’t even realize their gaps. It’s essential to recognize the need to improve and seek necessary training or education.
In the second stage, Conscious Incompetence, the person acknowledges their deficiency and understands the value of the new skill but isn’t proficient yet. This stage often involves making mistakes and learning from them.
In the third stage, Conscious Competence, the person has gained a good understanding of the skill and can perform it well but requires concentration and conscious thought. Consistency and practice are crucial here.
The final stage is Unconscious Competence, where the person has mastered the skill to a point where it becomes automatic. Trading decisions happen instinctively without conscious thought, and reactions to market changes are swift and efficient.
Understanding and identifying the Stages of Competence can help traders pinpoint their current skill level, recognize areas for improvement, and take the necessary steps towards becoming proficient traders.
