30 July 2009

Options and the Unconscious Competent

In other technical fields, I often heard of experts speak of the phases of skill progression from novice to expert, invariably stated as having four phases as below:
  1. Unconscious Incompetent
  2. Conscious Incompetent
  3. Conscious Competent
  4. Unconscious Competent
It's a fancy way of saying that you progress from an idiot, to knowing what you're doing without thinking. The unconscious competent is that individual that acts and reacts from second nature without having to think first. A kung fu master has hundreds of complicated techniques as his disposal that are second nature, due to thousands upon thousands of hours of practice. A master tradesman can be thinking about the hot looking woman that just walked past while he works; he is creating his work without thinking about it.

(N.B. I use the male gender generically and of course include females in this discussion)

Options trading is of course no different and it is the aim of any non-delusional individual to progress to the Unconscious Competent stage; just knowing what to do at any point, quickly, without an over reliance on software, calculators and suchlike.

The unconscious competent can have been in such a state for so long, that he no longer realizes what knowledge he is actually using.

An illustration of this point came up on a discussion forum recently. The question was asked, can you be successful without regard to the Greeks? Various points of view were put forth, but the one that interested me was from an ex-institutional trader with decades of high level experience. He thought that Greeks were not necessary for simple directional strategies.

I questioned whether he in fact had a mental map of option pricing that was so ingrained, that perhaps had a "picture" of the Greeks that he used without thinking about it, even with simple strategies. At first he didn't think so, but later reversed that opinion and agreed.

That man is an unconscious competent. Options trading is just second nature, to the point that he doesn't even have to think about it. This is the state all will aspire to and achieve given the correct knowledge/education. This is actually easier said than done as there is soooo much erroneous information and truly worthless (and very bloomin' expensive) options education programs out there.

Getting to the Conscious Competent stage for a retail trader is harder than many imagine, that is, getting the correct grounding in options theory and pricing. So many crash and burn from being taught BS.

Every options education program, whether in book form or CD/Internet course needs to be marketed in order to attract clients; and the trainers will require remuneration for their efforts.

But how does the options neophyte sort the good from the bad and the truly ugly?

Even good programs will indulge in a certain level of hype. This is the reality of marketing, "warts and all" reality just won't sell well. But on the other hand, what seems to good to be true, probably is. This is the sort of thing I have bagging out recently, the total BS claims and totally erroneous and inaccurate, even mischievously outrageous claims.

I guess it boils down to avoiding the worst of the hype and being somewhat skeptical, perhaps even cynical when evaluating a potential information vendor.

Be careful out there. Marketers are master psychologists (unconscious competents) and work on your base emotions rather than your intellect. Some of the worst programs are the most absolutely taleted marketers, because they appeal to those most powerful of financial market emotions, fear and greed.


ducati998 said...


Another interesting topic. I've made a start at a discussion.

jog on

Wayne said...

Hi Duc,

I note your discomfort with the "unconscious" tag on your blog. I'm interested where you go with it, because I think it's a bit of a misnomer as well.

ducati998 said...


Agreed. I'll be addressing it tomorrow most likely.

jog on

Anonymous said...

I'm new to these sites and enjoying lots of wayneL's stuff, thanks.
This term unconscious competent sounded quite good to me, even tho I was a medico and therefore unconscious has a specific medical meaning to me as well.
Maybe subconscious competent might be more acceptable but I think it's fine as it is.
BTW these prgoressive levels also seem reminiscent of buddhist/ eastern philosophical terms where the 4 levels could be restated as Ignorance, Mindfulness, Realisation, and lastly Effortless insight. Which is like being in the zone. Above all those one can progess to Nirvana but that might be a going bit far for options trading!
"Optional" Alex

Wayne said...

Hi Alex,

My wife suggested "subconscious competent" also.

Having thought about it for a few days, I like it as well. Thanks for affirming that, and thanks for the comment.