Developing Trader Competence

Many traders I meet at the Van Tharp Institue — both novices and veterans — have gone through periods of confusion, frustration, or maybe even outright desperation. Regularly I have witnessed how from such states they were then able to produce great improvements in their trading competence. It is astonishing to many, but ‘struggle’ is an important and necessary component for learning & growth. Follow your trading goals and you will eventually struggle or find resistance — be it mental or physical — before you achieve trader competence. Having gone through this same process myself, I have a passion to help others smooth-out the path to trader competence.

What is trading all about?

Many traders start out their journey searching for a ‘Holy Grail’ trading system. Unfortunately, this is a very time-consuming and exhaustive search which can take years. This journey typically leaves aspiring traders in frustration and all too often, the journey ends there with broken dreams left behind. Think about yourself: have you gone through a years-long search of that kind?

In reality, there is no such thing as a ‘magic system’ out there! True, a good system with an edge is the necessary starting point for your journey. Traders, however, need unconscious competence to be consistently profitable — and there are really no short-cuts to this state. After achieving competence, flawlessly executing a system in an unconscious competent way becomes easy — a seemingly automatic performance activity.

Why is trading so difficult to master?

I have a stong belief that Trading is a combination of Science (the intellect or the left brain) and Art (the intuition or the right brain). To join up the science-part of trading with the art-part of trading involves the whole brain — which makes the process challenging. This not only takes time and effort but the trader needs to transition through several developmental phases to become sufficiently competent enough to execute a strategy in a flawless way.

Typically, trading novices start out doing all the wrong things such as trying to trade countertrend moves or trying to pick tops and bottoms. Why is that? Because that’s the way the human brain is wired. You could say that ‘biology’ makes you actually lose automatically in the markets.

You may have heard Van state that ‘Trading is 100% Psychology”. Trading is a mental game that can be mastered but it requires building up new neural pathways. Some very useful behaviors in your daily life might need to be un-learned and re-learned in order to achieve trading success. The faster someone comes to the conclusion that there is no ‘magic system’ out there, the sooner that person can achieve trading competence.

Building trading competence — a process that takes some time & effort

Typically a trader goes through four phases before achieving Trading Competence.

Phase A ‘Unconscious-Incompetence’: this is typically dominated by the thinking that trading is easy and that traders just trust their guts. In phase B, a trader reaches ‘Conscious-Incompetence’ once it becomes evident that there is no Holy Grail out there — that one needs to acquire some competence first (either by developing a system on their own or by trading somebody else’s). This is phase when many traders attend a workshop at the Van Tharp Institute which helps moves them into the next phase — ‘conscious-competence’ (phase C).

A trader who has entered phase C has already come a long way. He or she has learned all or nearly all of the necessary and individual steps to become successful. To use a dancing metaphor: learning all the dance steps one-by-one, however, will not make you a great dancer right away You will need to deepen your knowledge and actually practice, practice and practice your dancing. Only when you can move your body seemingly without effort while doing the right steps, then you will have achieved ‘unconscious-competence’ (phase D). This is the place where flawless execution of the trading plan happens. This is when you have achieved trader competence and consistent profitability. Welcome to the mental game of trading!

Main success factors for trader competence

I have followed closely the development of a number of trading students and have learned the following success factors seem to work best:

1. Build useful Neural Pathways early on

It is always easier to learn something the right way from the beginning rather than having to un-learn previously acquired “bad” behaviors or habits.

2. Ride down your learning curve by transitioning through the Learning Stages

Follow your learning curve step-by-step by reducing complexity. Previous learnings should be integrated first before new ones are added. You will learn much faster if you increase complexity gradually and over time.

3. Be aware of your Learning Type and prepare accordingly

See article: What Learning Type Are You

4. Stay safely on the sidelines at first with Simulated Trading

Do not start trading the live markets right away. Learn to trade a system in a simulated environment until you can flawlessly execute it, that is without making mistakes anymore. Trading in a simulator accelerates your learning progress and you can trade many more opportunities in the same amount of time compared to trading the live markets.

5. Become part of a Committed Group of traders

Trading does not need to be a solitary activity. Becoming part of a group accelerates your learning, keeps you motivated and it is much more fun. Make friends with your fellow students and follow up with them after the workshop.

6. Build your Chart Reading capabilities

The skill of being able to read price charts is a basic trading skill. Whatever system you trade, this is an important competence that you need to develop.

7. Grow your Market Intuition (gain ‘screentime’ with Simulations, Demo- and Live-markets)

Analyzing charts and trading the markets builds your chart reading. With more experience you will start to understand, or instead let’s say you will start to ‘feel’ the market dynamics.

Many peak-performance activities have the common goal of Achieving Mastery or unconscious-competence. Let’s close this article with a quote on “Swordsmanship” that has stood the test of time. From the book ‘Zen & Japanese Culture’ published in 1959 which quotes a much older text:

However well a man may be trained in the art, the swordsman can never be the master of his technical knowledge unless all his psychic hindrances are removed and he can keep his mind in the state of emptiness, even purged of whatever technique he has obtained. …only then will he be capable of displaying all the arts acquired by the training to its full extent. He will move as if automatically – with no conscious effort.