Your Trading Personality?

What is my Trading Personality?

Before you put any of your hard earned money into the markets, you will need to know your trading personality.

Firstly – Do you want to be more of an investor or a trader? This is critical in determining your trading plan and which strategies will suit you.

Investors adopted a more “buy and hold” philosophy. They have a time frame of weeks, months, even years. Traders are much more short term oriented. Traders look to make money within minutes up to a few days or weeks. Most of the tools taught in this course can be used for both types of market players.

For example some people do not have the time to watch the markets during the day, so adopt a longer term trading system fits their ‘trading personality’.

Long term investors generally have a more vested interest in the company, or the fundamental analysis (FA). They use their FA to buy companies that they believe will do very well over a certain time frames (months, years) and assume the share price will reflect the companies successes. Daily fluctuations are less significant. However this style of investor would benefit from a firm understanding of technical analysis (TA) and integrating both forms of analysis to maximise their returns.

Traders on the other hand should decide what style of trading best suits their ‘trading personality’. Day-traders, for example, are in and out of positions within the day, this can be much too stressful for some people. Others thrive on the ability to lock in a result everyday and not have the risk involved with holding a position overnight.

Most traders fit into the one of the categories of swing, momentum, or position traders.

So, What Kind of Trader am I?

Well, one of the first questions to ask is; “How much time do I have to trade a position and how long can I comfortably be in a position?”
We can identify different trading personalities by timeframe. Take a look at these different styles and see which one may fit you.

Scalping – Scalpers are very short-term traders, usually in and out of trades within seconds. Most brokers discourage this type of trading. It’s also extremely dangerous due the high number of lots required to make a decent profit off a couple pips. Not for the faint of heart or shallow pockets.

Day Traders – Day traders open and close positions in the same trading session.

Swing Traders – Swing traders holds trades for days.

Position Trading – Long term position traders hold trades from weeks to months at a time.

Momentum – A medium term trading system, momentum traders pick the dominant trend in the market and ride it for days up to months.

These individuals usually do their stock trading from a few days to a few weeks, depending upon the market. They let the prices determine entrances and exits. The fundamentals are not as important to a trader as they are to an investor; price movement takes precedence.

Both the traders and investors can make good use of technical analysis to determine the timing of their entries into the market, as well as accurate exits. However, precise entries and exits are of more importance to traders than to investors.

Both investors and traders should monitor their positions on a daily basis. Neither need spend more than thirty minutes each day tracking and evaluating their portfolio.

Traders who decide to do stock trading full-time to make their living must decide whether they are willing to make the time commitment to follow the market intra-day. This does not mean that they are glued to the computer following every stock tick. However, there are decisions that often must be made during the course of the market day that will effect their positions. The fact that we follow the market on an intra-day basis does not mean that we are day traders.

Most traders are also investors, although the reverse is not necessarily true. Even traders who normally hold positions in their trading accounts for a few days at a time typically also manage their retirement funds or other long term portfolios. These accounts are normally not actively traded, so you might say that those of us who have both types of accounts have a “split personality.” Regardless, both styles of investing can benefit from understanding TA.
The investor who does no active stock trading might do well to learn the disciplines of active stock trading, particularly in the area of technical analysis. The time may come when their investments will grow large enough that they can choose to quit their day job and trade full-time. The ability to monitor the market during the day may allow them to reap the benefits of active stock trading, provided their personality allows for it.

Whether you consider yourself a trader or an investor, make sure that you learn well how to make good entries and exits. Discipline is very important to stock trading. It does no good if you buy the right stock after it has made its run, and sell it to close at the same price.

Investor or trader – which is better? Whichever fits your personality, risk tolerance and lifestyle. Don’t let anyone tell you that you should be one or the other. Examine yourself, and do what lets you sleep well every night.

The best thing is to have a proper and yet effective strategy to trade stocks more successfully before embarking it as a stock trading career.

Remember, pursuing a career in stock trading is like running a marathon; slow and steady. A lot of stamina and enthusiasm is needed to sustain you. More importantly, you must enjoy the process and journey of success!

Excerpt from ‘The Everyday Trader’s Stock Market Education Course’

What Markets to Trade?

What Market Should You Trade?

Different Markets Available

• Stocks
• Currency
• Indexes
• Bonds
• Treasuries
• Futures
• Commodities – E.g. Gold, Oil, Metals, Grains
• Options
• Contracts for Difference (CFDs)

Here is a brief overview of the above tradable markets to give a better understanding of their dynamics.

Stocks (Shares/Equities) – A stock market, or equity market, is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

Currency (Forex/Foreign Exchange/FX) – FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. Today, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing.

Indexes – Are a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used to benchmark the performance of portfolios such as mutual funds. Index trading involves buying or selling a basket of stocks or an index.

Bonds - A bond is a debt security, in which the authorised issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. It is a formal contract to repay borrowed money with interest at fixed intervals.

Futures – Futures are a standardised contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality (which, in many cases, may be such non-traditional “commodities” as foreign currencies, commercial or government paper [e.g., bonds], or “baskets” of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date. The official price of the futures contract at the end of a day’s trading session on the exchange is called the settlement price for that day of business on the exchange.

Commodities – Commodities are things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any quality inherent in the product. Commodity prices are constantly fluctuating depending on market forces.

Options - An option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a particular asset, such as a piece of property, or shares of stock or some other underlying security, such as, among others, a futures contract. In return for granting the option, the seller collects a payment (the premium) from the buyer.

CFD’s (Contracts for Difference) – A contract for difference CFDs is a contract between two parties, typically described as “buyer” and “seller”, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to equities, such a contract is an equity derivative that allows investors to speculate on share price movements, without the need for ownership of the underlying shares. Contracts for difference allow investors to take long or short positions, and unlike futures contracts have no fixed expiry date, standardised contract or contract size. Trades are conducted on a leveraged basis with margins typically ranging from 1% to 30% of the notional value for CFDs on leading equities.

With so many instruments and market(s) available nowadays it is hard to decide what market(s) to trade. At the end of the day, what market(s) you trade and what timeframes you decide to use are very personal decisions. Everyone has a different trading personality.

The main factors to take into account when try to work out what suits you personally as a trader are:

• Risk Tolerance – Futures are much riskier, than say stocks.
• Patience – Certain markets are much faster moving then others.
• Capital – How much you can risk and what returns you expect.
• Timeframe – Long term or short term trading?
• Market bias you may have e.g. Stock market over currency
• Your personal Psychology

Along with your personal trading aptitude, you also need to consider the liquidity of the market you want to trade and the volatility.

Liquidity

For a market to be tradable there needs to be a fair amount of liquidity. By this, I mean; there needs to be enough volume so that you can enter and exit a trade at any point you want. The worst thing possible would be entering a trade at say $1.00, the market moving up to $1.20 upon which you decide to get out of your trade; however there is only one buyer at $1.00, forcing you to take that price. The chart will also show you the volume on most markets. This information is critical, only trade markets with consistent significant volume.

Market Depth

You can get a rough gauge on the liquidity of a market by looking at the market depth. Most online brokers will have an option to see the first 10 or 20 buyers and sellers of a certain market. If this market depth is patchy, then that market is best avoided. You want to see a lot of buyers and sellers with little to no gap between the prices.

Volatility

For you to make money out of a market, the market needs to move! The more volatile the market, the greater potential for profits. But volatility is a double edged sword, it can also lead to being stopped out more quickly and massive equity swings. Again, you as a trader need to trade within your personal trading comfort zone. Deciding on the volatility level you are comfortable is part of formulating your personal trading plan.

Excerpt from ‘The Everyday Trader’s Stock Market Education Course’

What Makes a Good Stock Trader?

What makes a Good Trader?

It is common knowledge that 90% of all traders lose money, therefore only 10% make money. That’s a pretty sobering statistic. So what makes that 10% different? What skills, knowledge and aptitude do they possess?

The key ingredients that are evident in all successful traders is a combination of; Analysis, money management and most importantly psychology. Throughout this course we will teach you all three equally important aspects.

Most successful traders follow the school of technical analysis, or reading the charts.

Technical analysis (TA) is the process of studying price movements from the past and using that information to predict movements in the future. The reason it is so effective is that it shows what the masses are doing; it’s a gauge of mass psychology. Where people are buying, where they are selling, and what the trend is among other things. There is no way of passing your own opinions and judgments on it. The Chart shows exactly what is going on in the market; the trick then, is learning how to read it. This course aims to teach you just that.

Technical Analysis can be used across any traded market and the signals are as relevant for google stock as they are for gold or oil futures. TA can also be used to analyse markets over any timeframe, be it minutes to years. TA gives the trader the ability to quickly and easily see exactly where a market is headed without the need to know what is making that market move. This gives the trader more freedom to study multiple markets without having to be; for instance an expert in biotech stocks.

Money management refers to your risk management and ability to financially buffer losses and ensures your portfolio is balanced. As a trader you have to realise that there is no holy grail of trading. All trading systems have losing trades. In fact, most traders have more losing trades then winning trades. The key then is limiting the dollar losses on the losing trades and maximising the return on the winning trades. There is an old saying in traders circles – ‘The best loser in the markets is inevitable the biggest winner over time’.

Psychology is arguably THE most important factor in trading. As a trader you will need to emotionally distance yourself as much as possible from your trading. This sounds fairly straight forward, but it is the most difficult part of trading. The ability to walk away from a trade that went wrong is critical for success. Again, learn how to take losses and accept them.

Throughout the course we will teach you the tools to analyze the markets as well as give you a firm grasp of money management and psychology, both of which are paramount in making you a successful trader.

Excerpt from ‘The Everyday Trader’s Stock Market Education Course’

What is Technical Analysis?

Technical Analysis

Introduction

Trading involves entering high probability trades consistently and riding the winning trades, while quickly cutting losing trades. To achieve this one needs a rigid analysis technique that enables you to carefully manage risk and promptly make decisions when needed. There are 2 schools of thought on analysis of markets – Fundamental Analysis and Technical Analysis (TA).

Technical Analysis vs. Fundamental Analysis

There is an ongoing debate about the better method of market analysis.

Fundamental analysis (FA) is the method of evaluating the worth of a security by studying the financials of the security, that is: Income, expenses, assets, liabilities, management, industry, market share and basic supply and demand principles. In other words FA uses the fundamentals of the business. Fundamental analysts try to evaluate the true value of the company and therefore buy and sell based on the ‘value’ of the business. There are many people that have done very well out of FA, for example Warren Buffett, the richest man in the world, is a student of FA. Warren Buffett is an impeccable judge, and his ability to judge the ‘value’ of a company is widely publicised. But he is a rare breed of analyst and definitely not typical.
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There are many downfalls of FA -

• A company’s profit and loss is constantly changing.
• Forecast earning from analysts are constantly changing.
• The markets valuations on industries are constantly changing.
• Market conditions in industries can rapidly change
• The fundamental analyst’s thoughts and beliefs strongly influence their interpretation of the ‘value’ of the company.

With all these factors constantly changing, how can one know at any one time what a company’s true value is? Entering and exiting positions on FA alone is fraught with danger and generally throws risk management out the window, replacing it with hope that your own judgments are right and the market agrees with those judgments. I strongly believe that all fundamental analysts should AT LEAST have a basic understanding of technical analysis. It is a powerful tool in identifying market trends and exactly what the market is doing.

Technical analysis (TA) or charting is the process of studying price movements from the past and using that information to predict movements in the future. The reason it is so effective is that it shows what the masses are doing; it’s a gauge of mass psychology. The chart shows where the masses are buying, where they are selling, and what the trend is, among other things. There is no way of passing your own opinions and judgments on it. The chart shows exactly what is going on in the market; the trick then, is learning how to read it.

Technical Analysis is a cross between an art and a science. It is based on 3 basic beliefs:-

• Price movements are much more significant then fundamentals.
• Price tends to move in trends
• Price tends to repeat patterns.

Your analysis will provide you with the tools to increase the probability of profitable trades dramatically. There is never a 100% method or signal, but by combining high probability trading opportunities with good sound money management over the medium term to long term you will come out highly profitable.

Excerpt from ‘The Everyday Trader’s Stock Market Education Course’