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’
