The 5 Phases of a Forex Trader: Probably the best forex article ever written? posted on hub pages by a fellow trader who details the 5 phases that all successful retail traders went through. What stage are you at now? Leave a comment in the box below the article

Step One: Unconscious Incompetence.

This is the first step you take when starting to look into becoming a forex trader. You know that it’s a good way of making money because you’ve heard so many things about it and heard of so many millionaires. Unfortunately, just like when you first desire to drive a car you think it will be easy – after all, how hard can it be? Price either moves up or down – what’s the big secret to that then – let’s get cracking!

Unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven’t got the first clue about what you’re trying to do. You take lots of trades and lots of risks. When you enter a trade it turns against you so you reverse and it turns again… and again, and again.

You may have initial success, and that’s even worse – cos it tells your brain that this really is simple and you start to risk more money.

You try to turn around your losses by doubling up every time you trade. Sometimes you’ll get away with it but more often than not you will come away scathed and bruised You are totally oblivious to your incompetence at trading.

This step can last for a week or two of trading but the market is usually swift and you move onto the next stage.

Step Two – Conscious Incompetence

Step two is where you realize that there is more work involved in trading and that you might actually have to work a few things out. You consciously realize that you are an incompetent forex trader – you don’t have the skills or the insight to turn a regular profit.

You now set about buying systems and e-books galore, read websites based everywhere from USA to the Ukraine. and begin your search for the holy grail. During this time you will be a system nomad – you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. Every time you come upon a new indicator you’ll be ecstatic that this is the one that will make all the difference.

You will test out automated systems on Metatrader, you’ll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vain hope that your ‘magic system’ starts today. You’ll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you’ll find yourself chasing losing trades and even adding to them because you are so sure you are right.

You’ll get on forums and live chat rooms and see other traders making pips and you want to know why it’s not you – you’ll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You’ll then reach the point where you think all the ones who are calling pips after pips are liars – they can’t be making that amount because you’ve studied and you don’t make that, you know as much as they do and they must be lying. But they’re in there day after day and their account just grows whilst yours falls.

You will be like a teenager – the forex traders that make money will freely give you advice but you’re stubborn and think that you know best – you take no notice and over-trade your account even though everyone says you are mad to – but you know better. You’ll consider following the calls that others make but even then it won’t work so you try paying for signals from someone else – they don’t work for you either.

You might even approach a ‘guru’ like Rob Booker or someone on a chat board who promises to make you into a successful forex trader (usually for a fee of course). Whether the guru is good or not you won’t win because there is no replacement for screen time and you still think you know best.

This step can last ages and ages – in fact in reality talking with other forex traders as well as personal experience confirms that it can easily last well over a year and more nearer 3 years. This is also the step when you are most likely to give up through sheer frustration.

Around 60% of new forex traders die out in the first 3 months – they give up and this is good – think about it – if trading was easy we would all be millionaires. another 20% keep going for a year and then in desperation take risks guaranteed to blow their account which of course it does.

What may surprise you is that of the remaining 20% all of them will last around 3 years – and they will think they are safe in the water – but even at 3 years only a further 5-10% will continue and go on to actually make money consistently.

By the way – they are real figures, not just some I’ve picked out of my head – so when you get to 3 years in the game don’t think its plain sailing from there.

I’ve had many people argue with me about these timescales – funny enough none of them have been trading forex for more than 3 years – if you think you know better then ask on a board for someone who’s been trading 5 years and ask them how long it takes to become fully 100% proficient. Sure I guess there will be exceptions to the rule – but I haven’t met any yet.

Eventually you do begin to come out of this phase. You’ve probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times but now its in your blood

One day – in a split second moment you will enter stage 3.

Step 3 – The Eureka Moment

Towards the end of stage two you begin to realize that it’s not the system that is making the difference. You realize that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right You start to read books on the psychology of trading and identify with the characters portrayed in those books and finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain. You suddenly realize that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds, never mind the next 20 mins.

Because of this revelation you stop taking any notice of what anyone thinks – what this news item will do, and what that event will do to the markets. You become an individual with your own method of trading

You start to work just one system that you mould to your own way of trading, you’re starting to get happy and you define your risk threshold.

You start to take every trade that your ‘edge’ shows has a good probability of winning with. When the trade turns bad you don’t get angry because you know in your head that as you couldn’t possibly predict it, it isn’t your fault – as soon as you realize that the trade is bad you close it. The next trade or the one after it or the one after that will have higher odds of success because you know your system works.

You stop looking at trading results from a trade-to-trade perspective and start to look at weekly figures knowing that one bad trade does not make a poor system.

You have realized in an instant that the trading game is about one thing – consistency of your ‘edge’ and your discipline to take all the trades no matter what as you know the probabilities stack in your favor.

You learn about proper money management and leverage – risk of account etc – and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile. You weren’t ready then, but you are now. The eureka moment came the moment that you truly accepted that you cannot predict the market.

Step 4 – Conscious Competence – You can find the final part of this article by CLICKING HERE