Good morning, traders…

Do you ever wonder how good you actually are at trading, compared to every other market participant in the world?

Well, one mental trap affects every trader across the board — from small-account beginners to billionaire veterans.

It’s a phenomenon that doesn’t care about the size of your portfolio, the years you’ve been in the game, or how smart you are…

I’m talking about a key concept from the world of psychology known as the Dunning-Kruger Effect.

This is a cognitive bias that tricks people into misjudging their abilities. 

The less you know, the more likely you will overestimate your skills. While the more experienced and knowledgeable you become, the more likely you are to doubt yourself. 

I’ve seen this countless times among my students (and even with some of the best traders I know).

True experts often undervalue their abilities. They might experience “impostor syndrome,” constantly questioning whether they’re good enough. 

On the flip side, beginners think they’re destined to be the next Warren Buffett after a few winning trades. Two weeks in, and they’re already planning to quit their day job.

Are you really as proficient as you think? Or are you undervaluing your skills? 

You must truly know thyself, which is easier said than done…

But here’s the good news — by understanding the Dunning-Kruger effect, you can spot where you might be falling into this mental trap (and respond accordingly).

With that in mind, let me show you how to recognize (and avoid) the Dunning-Kruger Effect in your mindset…

Don’t Overvalue Your Experience Level

Believe it or not, one big win can be an aspiring trader’s worst enemy.

I’ve seen this happen time and time again…

An inexperienced student nails one of their first trades. Maybe it was pure luck, or maybe they had a strong trade thesis. 

Regardless of the reason, they’re riding high after that initial success.

After this one successful trade, the newbie thinks they’ve cracked the code. In their mind, they’re already a top-tier trader. 

They’re brimming not with confidence, but with overconfidence. They feel invincible…

Then comes the critical mistake — they size up BIG on their next trade. They take on a massive position, convinced their previous success wasn’t a fluke, but rather proof that they’re a natural-born trader.

Of course, they’re wrong…

One good trade doesn’t make you a fully-formed trader. Anyone can get lucky on one setup, like hitting it big on a single casino bet. 

But the market doesn’t care how you did on your last trade, and it won’t go easy on you just because you’ve had a bit of early success. 

What happens next? The overconfident trader ends up losing big (or worse, blowing their entire account) on that next trade. 

One mistake, and everything comes crashing down.

The lesson is obvious: Don’t let a single trade define you — especially early in your trading career. 

Slow and steady wins the race. Take your time, stay humble, and never stop learning. 

You’ll not only avoid the trap of overconfidence — but also protect your account from unnecessary risks.

But Don’t Be Too Hard on Yourself Either…

Even the most experienced traders can fall into the opposite trap — being too hard on themselves…

It’s a balancing act. As crucial as it is to evaluate your trades, review your mistakes, and determine where you went wrong — there’s a point where self-criticism becomes counterproductive.

I know this all too well from personal experience…

When I first started trading in 2002, I had no edge, no strategy, and no idea what I was doing. I made more losing trades than winning ones.

And worse yet, I was hard on myself. I could feel my confidence slipping away…

But then, I had an “a-ha moment.” I discovered options trading, and suddenly, everything started to click.

Once I realized that I could see exactly which contracts the Smart Money was buying and follow them, my life changed forever. 

I built my OMEN Scanner, and the rest is history…

Now, 25 years later, I’m still here, still trading, and still learning. I went from a consistent loser to having an 87% win rate in 2024.*

The lesson here is simple: don’t let early losses crush your confidence. 

Trading is a marathon, not a sprint. It’s about improving incrementally, day by day. 

Forget about instant gratification. If you try to rush the process, you’ll burn out or blow up your account.

Finding the Middle Ground

The Dunning-Kruger effect can impact traders at every level…

Newbies often fall into the trap of thinking they’re trading prodigies after a few lucky trades. 

Meanwhile, experienced traders can be their own worst critics, constantly doubting their skills — even when they’ve proven themselves time and again.

Both are dangerous mindsets. To succeed in trading, you need to find the middle ground…

Cultivate a sense of humble confidence. Be eager to learn, especially in the early stages of your journey. 

But once you’ve got some experience under your belt, don’t be afraid to take calculated risks.

Keep your head on straight, stay focused, and always strive for that balance between caution and confidence.

Happy trading,

Ben Sturgill

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*Past performance does not indicate future results