If you want to be successful trader understand the psychology of expertise

Why you need to understand psychology of expertise

The primary challenge for novice trader is of building expertise. To become a better trader you must have a good understanding of psychology of expertise acquisition. What is an expert. Layperson uses the term expert loosely to describe anyone with superior knowledge or skill. Psychologists use the term expert to refer to an individual who is significantly more experienced than others in performing a particular task. Expertise is task specific.

Ability to trade profitably is not about trading knowledge. Because trading is a performance skill. You have to perform some tasks to be a successful trader. That is a skill area. As against that say if you had to give a lecture on trading everyday, it is a knowledge game. To build performance skills in any field what is required is extensive practice. The reason many traders fail is because they start trading without extensive practice and then they quickly get discouraged. If trading was only about practice all old traders would be profitable, that is also not the case. So what really is the key.

Domain Specific expertise is key.

Trading is a complex skill. So you have to juggle several pieces of information to make successful trade. So if you can simulate the practice of trading then you build expertise. So trading is a learned and learnable skill. But to do that successfully we must consciously understand the psychology behind expertise building. Then we can consciously do things that will speed up our expertise building.

In process term if you want to learn to trade well you need to develop expertise in specific task of trading a specific setup. So having generalized skills is not enough, but you must have a very specific skill in trading a pattern, or a market anomaly, or automated trading. Studies of experts show that their skills are highly domain specific. A good pastry chef has a very specific domain specific expertise in making cakes or pastries. That does not necessarily mean that they can make other good food.

Become an expert in a setup or timeframe

What it means in practical terms is you have to narrow down your expertise building process to a method or a set up or a time frame or a instrument. Many times beginner traders want to be day trader and also long term trader and also option trader and also macro trader and also currency trader and also and also high frequency trader and also so many other things. While if you see successful traders, they mostly trade a very specific method. Warren Buffett trades only value investing and that too in a very specific niche of non technology stocks. Dan Zanger specialty is bull flags in IBD kind stocks. So a focus on a very specific domain expertise is first requisite to building expertise. If you build expertise in one specific area and consciously understand the process involved then you can increase your repertoires of skills.

The Episodic Pivots boot camp is specifically designed for developing expertise in a specific domain. If you spend sufficient time doing that then you will be able to later add more methods. I intend to do series of such bootcamps over next 6 month. They are more conducive to expertise development than a trading guide. As those who are active participants have realised that knowing does not mean you can perform a task. All of you have read my trading guide on Episodic Pivots, but when you have to actually put it in practice you realize, you do not have skills in Episodic Pivots data gathering and analysis. the only proven way to build skills is by repeated practice.

What does it take to be successful trader

Behind every performance skill there is ton of practice. To sustain that practice and to overcome frustration involved in the process of learning new skills, you need drive. You need the drive to overcome problems and critic your own performance and improve upon it. But many of us are not necessarily comfortable with that process. This is where the self efficacy beliefs become important.

Self-efficacy is a person’s belief in his or her ability to succeed in a particular situation.Self-efficacy is the most important thing if you want to be a full time trader. If you have that then all other things are manageable or you will find solutions to your problem. Independent traders, entrepreneurs, and leaders have one common thing, strong sense of self efficacy. Why do you think Barack Obama became the President Of USA and others who aspired for it for many years could not. The secret is self efficacy.


Perceived self-efficacy is concerned with people's beliefs in their capabilities to exercise control over their own functioning and over events that affect their lives. Beliefs in personal efficacy affect life choices, level of motivation, quality of functioning, resilience to adversity and vulnerability to stress and depression. People's beliefs in their efficacy are developed by four main sources of influence. They include mastery experiences, seeing people similar to oneself manage task demands successfully, social persuasion that one has the capabilities to succeed in given activities, and inferences from somatic and emotional states indicative of personal strengths and vulnerabilities. Ordinary realities are strewn with impediments, adversities, setbacks, frustrations and inequities. People must, therefore, have a robust sense of efficacy to sustain the perseverant effort needed to succeed. Succeeding periods of life present new types of competency demands requiring further development of personal efficacy for successful functioning. The nature and scope of perceived self-efficacy undergo changes throughout the course of the lifespan.

The ability to persist in face of obstacle is something which separates most successful traders from those who attempt it. If you persist at some stage there is a mastery experience and then there is significant boost in confidence and release of energy and then you can do the task easily. Most expertise building phases are not only about rational things at some stage in expertise building you emotionally also get it and then it becomes part of you.

Psychology of expertise development

Psychologists have studied expertise development and experts in various fields and today there is a very good understanding about what makes an expert a expert. Or what process can lead to gaining expertise. If you are conscious of the process you will become consciously competent. Many people are competent but they cannot explain the process behind the expertise.

As adults we have the ability and capacity to become expert at various task. During adulthood we become experts at doing specific tasks that are important to us. These tasks may be related to career, work, sports, leisure time interests, or human relationships. So someone becomes expert in cooking, or cycling, or software development, or ballet dancing, or music , or neurology and so on.

When we become expert in a task many times we are not aware of the process involved in gaining expertise. If we consciously look at the process of building expertise then we can do things to gain expertise n trading. The study of expertise examines how and why adults acquire the ability to do less and less, better and better,so much so that where the task performance appears effortless.

What distinguished experts from novice

The difference between experts and novices cannot be reduced solely to experience. Experience is defined as time invested in learning how to perform tasks. There are at least ten qualitative differences between experts and novice.

1. Novices rely on formal rules and procedures to guide them in performing tasks. Experts rely to a greater degree on their accumulated experience.

2. Novices are highly conscious of the task performance process. So they are focused on task. This task consciousness creates a load on cognitive process. The cognitive load theory shows that humans have very small short term memory. So when they try and do complex task where they have not yet acquired expertise, it leads to cognitive load. They are trying to remember steps or sequence or method rules. This is a distraction and creates additional "load" on cognitive processing. That is why they become frustrated, harried, or lack confidence.

3. Novices have not developed task automaticity. As expertise grows, performance of the task becomes automatic. This cognitive phenomenon is called "automaticity."

4. As expertise is acquired, the learner's cognitive processing system becomes more efficient at processing new information. The repeated practice transfers task specific knowledge to long term memory. That frees up short term memory.

5. Experts can see the whole picture. They are also more aware of the specific circumstances in which they are working.

6. Experts have good self-monitoring skills.

7. Experts can make even very complex, difficult tasks look easy.

8. The expert has a larger number of strategies, and more effective strategies, for performing the task. This may be the most critical difference between the expert and the novice. Experts have multiple strategies for dealing with the unexpected things and change of circumstances. This is the X factor. You develop this if you spend significant effort immersed in a task.

9. Experts are more flexible than novices. They rely on intuition in ways that novices find difficult to comprehend.

10. Experts have spent significant time and effort in developing expertise in a specific domain.

You must understand this very well if you want to become a good trader. Expertise development is a process. Study the psychology of expertise. It applies not only to trading but everything else in life.

So what is your plan for building your trading expertise................

Later

Cognitive efficiency is key to building expertise