4 Stages of Trading Competence | Evolution of An Elite-Level Trader

4 Stages of Futures Trading Competence | A Hypothetical Evolution of An Elite-Level Trader


This article on  the 4 Stages of Futures Trading Competence is the opinion of Optimus Futures

4 Stages of Futures Trading Competence

If you’ve ever taken the time to learn a skill properly, you would’ve realized rather quickly that the more you know, the more you actually don’t know. You’ve likely figured out that there’s yet another hill to climb, an even higher one, having reached the previous hill’s peak.

To take another metaphorical approach, now that you’ve dipped your toe into the water, you look out to see that the entire ocean is much deeper and more expansive than you had initially thought. And it seems never-ending.

So how can you gauge your competence? Well, in trading, one way is to pay attention to your real P/L (real, not demo, as that doesn’t count). But besides that, how might you determine your competence level as a trader? Ironically, by the time you reach a competence level with regards to knowledge, skills, and experience, you might not even be aware of it.

Yes, you can be a competent trader without actually knowing the full depth of your competence (assuming you’re actually profitable, which is the only real measure of competence). But how is it possible to not recognize one’s own competence? To answer that, we’ll have to borrow a bit from psychology. Let’s look at the Four Stages of Competence.

Trading CompetenceImage source: Wikipedia

What Are the Four Stages of Competence?

The four stages of competence were first described as “the four levels of teaching” in a 1969 book titled The Dynamics of Life Skills Coaching by management trainer, Martin M. Broadwell. Let’s cut to the chase and describe each level in plain language, and then we’ll go over each level slowly.

We’ll breeze through each description in a somewhat crude but clear manner.

Stage 1: Unconscious Incompetence is where you don’t realize how much you actually suck at something. You’re quite bad at it, and you just can’t even see it.

Stage 2: Conscious Incompetence is the stage at which you begin realizing just how bad you are at a given skill. This is where, having dipped your toe in the water, you see an ocean that’s on the verge of either swallowing you up or wiping you out.

Stage 3: Conscious Competence is the stage at which you’ve managed to build your knowledge and skills, knowing full well your capabilities and limitations.

Stage 4: Unconscious Competence, the final stage, is where your experience has accumulated to the point that a skill has become second nature; it’s where you can get into an intuitive flow state in a given area of practice; and despite realizing how much more there still may be to learn, you no longer realize that your baseline level of competence is already far greater than that of the average practitioner.

The Four Stages of Trading Competence

Now, let’s backtrack and go over each step, following the hypothetical evolution of an elite-level trader.


Not realizing how much you don’t know.

So what characterizes a trader who is unconsciously incompetent? It certainly isn’t profitability, as some traders may be profitable in the earlier stages. Perhaps its beginners luck, or perhaps s/he learned of a methodology that actually works (a one-, two-, or three-trick pony?).

Traders in the unconscious incompetence stage know their limits. But what characterizes them from consciously incompetent traders is that they do not realize how limited they actually might be.

They might not realize that their knowledge base is literally a fraction of a fraction of what they need to know. They may not see that certain risks lurking in the markets are much more dangerous than they appear to be.

In short, they may acknowledge what they don’t know. But they don’t know exactly how much they don’t know (if that makes sense). Hence, they are vulnerable to risks or missed opportunities simply because they just couldn’t see what’s often in front of their faces.

You know the saying, “you wouldn’t recognize a [fill in the blank] if it bit you in the behind.” Well, that pretty much sums up the unconsciously incompetent trader.


Seeing an entire field of knowledge from the outside.

Perhaps it’s a humbling experience, one typically brought on by a devastating loss (or string of losses), or the frustration of not being able to do anything right in the markets. Whatever the case may be, you willingly go back to the drawing board.

What comes next often takes the form of multiple iterations, much of which may end in failure. But as the cliché goes, you “fail forward.”

What’s important in this stage is that you see an ocean of limitations. But you also realize that not every part of the ocean is worth covering. You draw a space, a little territory, but one whose relation to the “outside” is well monitored. You may be, say, a short-term swing trader by preference, but you are also aware of the pros and cons and stats or probabilities of your style.

You are aware that by choosing to swing trade in your particular way (as there are numerous ways to swing trade), you are closing the door to plenty of other approaches. And you’re okay with it. You are well aware of what you don’t know, but you are also determining what things are better left unknown.


Acting on what works and building on it.

You know how to place a series of well-executed trades. You know how to identify it, contextualize it, and properly act on it. More importantly, you understand the boundaries and limitations of your methodology.

For example, you work with Fibonaccis, a method that favorably resonates with your style of thinking and trading. But you also have to take the time to break things down: measure the Fibs across all potential trends and micro trends, calculate the risk-to-return levels, measure the retracements–overall, following a strict sequence from price action identification to execution.

In other words, you know you what you are (and are not) good at, and you are working toward expanding your current skills. Your execution is still somewhat mechanical as you haven’t yet internalized the processes to the level of intuitive function. But slowly, given enough time, practice, and thought, you may get to the last stage of optimal functionality.


Your high-level skills have become so normalized that you don’t even realize how good you’ve become.

At this last stage, your average performance may be considered superior in the eyes of an average practitioner. You may still be following strict procedures, but your sense of the entire process has become somewhat intuitive.

Perhaps you are able to focus on different potential angles at once, from various technical and fundamental perspectives to variances by way of position management and execution.

You get a sense as to whether a defensive or offensive money management strategy might be more suitable for a given trade, and you are able to seamlessly switch between technical perspectives–approaches that may be incompatible with one another. And you are able to do this confidently and with a great degree of certainty (whether the trade actually works out favorably or not).

The unconsciously competent trader is able to execute trades with a level of skill that no longer requires a mechanically burdensome effort. Trading has become “second nature” to the practitioner.

Although not every trader will reach this level of trading, every trader is at least capable of reaching this level as long as s/he is able to find what resonates most with a trader’s natural inclination with regard to thought and action. Finding what resonates with you is the closest thing you will ever find to the holy grail. But finding it is also key to progressing through each level of competence as described in this article.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

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