As I have said earlier the key to success in trading is about developing procedural memory. Procedural memory is a long term memory for skills. It is implicit memory and as a result difficult to verbalize.
Procedural memories are muscle or thinking sequences which have been internalized by the brain and when required to perform a task the procedural memory kicks in and you can effortlessly do the task without being aware of steps. Procedural memory is also called skills memory.
The most well known psychological model of skill acquisition is called Dreyfus model. In 1980, two brothers working in the area of artificial intelligence and software were commissioned by the Air Force Office of Scientific Research (AFSC)to study skill acquisition. They submitted a report to AFSC titled " A five stage model of mental activities involved in skill acquisition".
Subsequently the model was published by them in a book Mind over machine: The power of human intuition and expertise in the era of the computer , in which they proposed a model of skill acquisition that argued that skill acquisition process is 5 progressive stages of development.
The five stages of development are:
- Stage 1: novice
- Stage 2 : advanced beginner
- Stage 3: competent
- Stage 4 : proficient
- Stage 5: expert
At novice stage it is all about following the rules. The novice thinks in terms of rules but has no context or ability to modify rules. At this stage the energy is focusing on following the rules rather than thinking.
Is still rule based but rules are now situational based . So instead of blindly using the rules at this stage you start using a set of rule in a A situation and different set of rules in B situation.
At this stage you start to realize that performing this skill has more to it than just following rules or changing rules according to situation. You start to see patterns and principles and start realizing rules are not absolute and they are guidelines or rule of thumb. You start performing the skills more by experience and active decision making rather than strict rules.
At this stage you start thinking in terms of complete picture. You develop a perspective about your area of skill or focus.
At this stage it is intuitively appropriate action without being conscious of you skills.
The Dreyfus model of skill acquisition is widely used in various fields to develop instruction material for training new skills. As a trader if you understand the model you can work on your own skills better.