The Four States of Competence

Hello Traders, Rishi Patel here, co-founder of Master the Markets, Elite Traders Conference and The Traders Open Day.

Welcome to this topic about the four states of competence. What are the four states of competence? How do they apply to trading?

The four states of competence are unconsciously incompetent. This is where you don’t know what you don’t know. Then you move to the second phase which is consciously incompetent. That’s where you actually know that you don’t know. Then you go to the third phase which is consciously competent and in this phase you know that you know and you’re practising consciously. The final phase is unconsciously competent. In this phase you’re no longer conscious but you’re actually taking action. For example, breathing. You’re not actually conscious that you’re breathing all the time yet you’re doing it. It’s an unconsciously competent habit that has formed over a period of time.

How can this apply in a real world scenario and how does it apply in trading the markets? This is one of my favourite topics because this is all around trading psychology. Trading psychology is incredibly fascinating because it’s all a study of the mind and everything that we do. Some of you may know our limited company’s name Vedanta Trading Limited. Vedanta is the science of mind mastery. It’s an incredible study of the inner world and of the mind and the way that applies to trading is just amazing. All of these concepts apply so directly.

How would the four states of competence apply to something in everyday life? I’ll give you an example of learning to drive. Let’s say in the initial stages you’re a baby or you’re growing up, you’re only a couple of years old and you don’t know that you don’t know how to drive. At this stage you’re unconsciously incompetent. As a baby, you don’t know what you don’t know, you have a toy car and you’re happy with that. You don’t know that you don’t know how to drive it.

Let’s say you’ve grown up, you’re eight or nine years old and you’re seeing your dad, a really cool guy driving his car, he’s going fast, overtaking other cars, and you find the whole thing to be fascinating. But you know that you can’t do it. You’re actually consciously incompetent; you know you can’t drive.

You move to the third phase where you’re now 17 years old and, apart from all the hormones flying all over the place, you’re legitimately legal in the UK at least to get a provisional drivers licence. What a lot of people do is they get a drivers licence and they start to take lessons from a driving instructor, someone who is professionally qualified to guide them through how to navigate and use a vehicle safely. So you get into a car with an instructor and most of the time the instructor is controlling the pedals, guiding the steering wheel and everything else. Now you’re just in the driver’s seat and you’re learning. You pass your practical and theory tests and now you’re completely in that focused state where you’re now by yourself in the car and you’re consciously holding the steering wheel. Your hands are in the 10 to 2 position, you’re using your mirrors, your signalling your manoeuvers, you’re indicating perfectly, waiting at the roundabout as you’re meant to and everything else you’ve been taught. But you’re consciously thinking about the whole process all of the time. This is the third phase, you’re consciously competent.

In the final phase of driving what happens is you become unconsciously competent. Now you’re driving and at the same time you might be managing your position as you’re driving, you may be on the phone, talking to your wife, any of these things may be happening and you’re not even thinking about driving anymore. Mirrors, signals, manoeuvres – they all become second nature, they flow effortlessly. That’s unconscious competence applied to driving.

How does this apply to the market? What we find is that most traders get stuck in the first phase. They get stuck in the space where they don’t know what they don’t know. A lot of traders, for example, don’t know how to construct a trading strategy using the seven step process. I’ve discussed this in one of my videos on our blog – it will tell you how to actually do that. But most traders get stuck in the first phase because they download something online or start to watch something but it never really helps them make any real progress. A lot of traders start to wonder why they can’t make consistent money trade in the market. Why is that? It’s just because of being in that phase of being unconsciously incompetent. They don’t know the tools that they need and they don’t know that they don’t know.

Once you’ve learned the seven step process, now you move to the next phase of becoming consciously incompetent. Now you’re in a space where you know that you don’t know how to construct a strategy.

Then they move to the third phase which is consciously competent. This is where we transition traders over to a professional mentoring business – Master the Markets is a professional mentoring business. We transition traders into this phase, we make them consciously competent. What traders do in that phase is they have a set plan, a set routine, they follow the discipline, they place only the trades they’re meant to and they’re following everything strictly but it’s a conscious effort to do it. This is the third phase.

In the final phase of trading the market, this is what Mark Douglas describes as trading in the zone and that’s what his book is about. If you haven’t read it, it’s a fantastic read. This is one of the things he discusses. How you can be in the zone and trading in the zone. When you’re trading in the zone at this time, you are actually unconsciously competent. In the zone, going with the flow of the market, you can even predict price movements. Now don’t be fooled because a lot of traders feel that for some reason they’ve got to this stage. It’s very difficult to get to this stage immediately. You need plenty of screen time, lots of background, lots of research and this is not something you can shortcut. You’ve got to find that flow, that mastery, that unconscious competence yourself and that’s the fourth level of trading.

I hope this has added value. That’s the four states of competence. Leave me some comments and let me know how you found this topic and let’s communicate on the blog. Until the next time, as we always say, stay disciplined, follow your trading plan and keep Trading Like a Master.

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