Beware the Dunning-Kruger Effect

Mike Richardson on May 26, 2021

Groundbreaking research published in 1999 by psychologists David Dunning and Justin Kruger entitled, “Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments” demonstrates the tendency of people to assume they are more skilled than they actually are.

Hyped rising financial markets are a hot-bed for the Dunning-Kruger Effect of being dangerously over confident.  What’s that saying, “everyone feels like a genius in a bull market”.  Be especially careful with super-hyped new things like Crypto Currency.  Especially if you experience some beginners luck!

The key for Crypto and Retail Trading and Investing more generally, is to get educated, to learn the specialist knowledge, build the skills, evolve proficiency and develop confidence to not end up on the wrong side of the Dunning-Kruger Effect.

With more than 2 decades of experience in providing over 80,000 students so far with lifelong education we have become very clear about some of the secrets.  These were just reinforced again in a latest survey of over 1000 students in April 2021:

  • Trade Planning: this is like strategic planning for your trading and investing.  We all know in business and life that achieving our goals often requires strategic planning and disciplined execution.  Our experience is that it is no different with trading and investing.  That is why we teach our students to have a trade plan.  Our April 2021 survey respondents reported that 85% had created a trade plan.
  • Risk Management:  taking an educated and responsible approach to risk management.  If you are guessing your are gambling!  Our April 2021 survey respondents reported that 76% were more knowledgeable about how to manage risk.
  • Engaging in Education:  staying engaged in your education, with ongoing support and a community of like minded students on lifelong learning journeys.  The goal posts are ever moving and there are always new frontiers to be learning about.  Our April 2021 survey respondents reported that more than half spend more than 4 hours per week in their education, with 20% spending more than 10 hours per week, predominantly spending that time in weekly online sessions with instructors and each other.

Overall, our April 2021 survey respondents reported that 69% wished they had started their education with OTA sooner.  Now that's an answer to not ending up on the wrong side of the Dunning-Kruger Effect! 

  • Don't end up on "Mount Stupid" or in the "Valley of Despair"! 
  • The answer is the "Slope of Enlightenment" and the "Plateau of Sustainability". 
  • That is the essence of our Compass Program at OTA and facilitating the student learning journey.

Watch this space for more about Compass and The Dunning-Kruger Effect.

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