Why do we Fail? 5 Trading Psychology Stages to Consider

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Why do we Fail? 5 Trading Psychology Stages to Consider

trading psychology stages

Trading is gaining a lot of prominence these years. Today, young people in developed and developing countries are enrolling to courses that teach them how to trade the financial market.

Unfortunately, there is a lot of misconception about how the financial market works. This has led to many traders losing money. In fact, studies have revealed that only 15% of traders make money. Instead, 85% fail.

A large part of this is influenced by the individual skills of each trader and how he is good to use the tools and various indicators. But the psychological aspect also plays a fundamental role, and there are some emotions that you absolutely must master while you are day trading.

In this article, We will highlight the five stages about the Trading Psychology, how and why you have to identify your level.

But first of all let’s see how the psychological factor can influence your trades.

How Psychology/Emotions influence traders

Quite often, emotions influence traders in 2 ways. One, when a trader makes insurmountable losses, they become depressed. In the few minutes that follow, the trader makes the wrong decision of entering a trade to recover the lost money.

For instance, if the trader made losses with a EUR/USD sell, they become convinced that going long will help them recover. This is usually a wrong decision since no much thought is put on the trade (but you can do this). The trader ends up making more losses.

The other emotional behaviour happens when a trader makes good money in a trade. When he exits the trade, he can decide to make the sudden decision of getting back.

For example, assume that a trader makes 10 pips going long EUR/USD. After making the exit, the chart continues to go higher. The automatic decision for the trader will be place a buy order. Quite often, the trader erodes much of his gains.

In other circumstances, a trader who lacks a good trading strategy will often liquidate his position prematurely. Often, this is usually guided by his emotions and not the exact numbers.

The 5 Stages of Trading Psychology

#1 – Unconscious Incompetence

This is a stage that we all go through. Here is how it happens.

You take a copy of Forbes magazine and read about a trader who recently made millions. You then go online and watch videos about traders at Wall Street and The City who live in mansions worth millions and drive Ferraris. You then gain interest in the business and register for a demo account.

You open a few trades and make good money. Then, after a few days, you believe you are now an established trader. You open a Live account and open trades without any analysis (in short, forecasting). Within a short while, you lose all the money.

This stage is similar to when you are buying your first car. You think that buying a car is a simple step. You go to a dealership and select a car without asking key questions such as the consumption of the car. Soon, you will realize that you bought a guzzler that will cost you a lot to maintain.

Most traders end at their trading careers at this stage.

#2 – Conscious Incompetence

This is the stage where you realize how little you know about trading. You realize that you need to put in more work in your trading strategy. So, you start getting the knowledge from all available sources:

  • YouTube videos from ‘professional’ traders.
  • Hundreds of Books/eBooks (and there are many).
  • Experimenting on new systems and technical tools

This stage can last from a few months to years. 60% of traders will give up in the first three months. Only a handful of traders will make it from here.

#3 – The “Aha” Moment

This is the moment you realize that the problem is not the system, but that in the financial market you don’t need all the tools that you have read.

You realize that you can still make money by using a simple moving average. You also realize that there is no real expert who can predict what the market will move in the next 20 minutes. This stage is when you understand that making money in forex takes more than a system.

And You learn one of the most important lessons: there are trades that will go your way while others will not. Even when you lose money, you realize that its just a process and not the end in itself.

Related » How to develop resilience in trading

#4 – Conscious Competence

This is the stage where things are going really well for you. At this stage, you only make trades only when your system tells you to do so. If your trading system tells you not to enter a trade, you wait. At times, you can wait for hours before the signal is triggered.

This is also a point where you break out most of the times. Though there are times when you make losses, you are consistent with your wins. This stage lasts for almost 6 months. Only a very few traders reach this stage.

#5 – Unconscious Competence

This is the stage which only a few patient traders reach, because it can takes years before it is achieved. At this point, trading becomes boring the way it should.

You have spent years looking at charts such that you have a clear understanding of the way you like your charts. Entering and leaving trades will be a normal thing. At this stage, while you will make losses, they will be more mitigated.

Why You Should Understand Your Trading Psychology Level?

As a trader, having a good understanding of the stage you are is very important. In our history as a trader and coach, We have observed that people who succeed are mostly not the best at analysis. But they are good at understanding the stage they are in.

There are several benefits for having this knowledge.

Don’t Rush

First, it will help you be patient enough to trust the process. This simply means that you will not rush to open a live account if this is your first time hearing about trading. Instead, you will take the leap of faith, learn about trading, and spend several months in a demo account.

At Real Trading, all our traders are required to spend a few months practicing using the TMS platform.

Save up your account

Second, knowing where you are will actually make you money. Indeed, the main reason why so many traders lose money and give up is simply because they don’t realize the stage where they are in.

Third, and most importantly, understanding your stage will help you build a network and find materials that will make you a better trader.

Psychological help

Finally, knowing where you are as a trader will help you psychologically. That’s because, it will train you on concepts of risk management. As such, you will remain being of sober mind even when a trade fails to go your way.

How to identify your stage

Understanding the stage where you are is relatively simple process. For one, if you are just getting started, you know very well that you are actually at the unconscious incompetence stage. Similarly, if you are an advanced and highly experienced trader, you know that you are in the conscious competence zone.

You can also learn about your stage by reading books, talking to experienced traders, and even watching videos about trading. In fact, now that you have read this article, you actually have an idea of where you are in your trading journey.

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Tips to boost your psychology state

There are several things that you could do to boost the state of your emotions as a trader:

Be part of a trading office

First, you could start your trading career by being a part of a trading floor or an investment fund. By doing that, you will be part of an entire organisation that has experienced people. You will learn how trading is done.

Fortunately, it is relatively easy to find a trading floor these days. At Real Trading, we have helped thousands of people start their floors in the past two decades.

Read. A lot

Second, reading books can help you handle your emotional state. Fortunately, there are many books that will help you towards this path. In particular, we recommend books written by former and current traders and investors.

Have a mentor

Third, have a mentor, who will help you understand how the financial market works. This should be someone who has been in this business for a long time.

The mentor will explain to you how to handle different stages of your trading.

Manage your risk properly

Finally, always have proper risk management strategies to prevent substantial drawdowns when trading. Some of these risk management strategies include having a stop-loss, reducing the size of your trades, and not being over-leveraged.


A self-assessment is an important concept in all professional fields. The same is true about the trading industry. In this article, we have looked at the five important trading psychology stages that all traders go through.

No matter your stage, it will help you be a more professional trader.

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