What Kind of Trader Are You?

 

3/11/2025 - PM - Here's another thing to think about re: the kind of trader you are:  Do you have a sound, well-thought out, tested process for making money in markets that you sometimes fail to follow or do you need to refine your processes for generating ideas, sizing positions, managing risk, etc?  In other words, do you need to do a better job of following your ideas or do you need to generate better ideas and trade them better?  Is your psychology interfering with your trading, or are your trading weaknesses interfering with your psychology?  It's difficult to make improvements in trading performance if you're not clear on what needs to be improved.

3/11/2025 - AM - Before I respond to the questions of those who attended my recent webinar, I would like to share the fruits of a discussion I had with an experienced and insightful trader.  The basic idea is that we experience emotional disruptions in our trading, not because we lack discipline or are overcome with greed or frustration, but because we are trying to trade in a way that doesn't leverage who we actually are.  When we don't play to our strengths, trading can be frustrating and unfulfilling.  The best path to wealth in trading is to draw upon the wealth of talents, skills, and interests we bring to markets.

There are basically two types of traders.  The first generally trades very short-term and places many trades per day.  This fast trader excels in pattern recognition and also excels in the ability to maintain high levels of focus and flexibility of perception within and across trading days.  Often these traders are quite competitive and love finding and pursuing opportunities that set up on the screens or in the order books.  For instance, the fast trader will notice volume expanding on a break out of a short-term range and may quickly jump aboard that move, with the idea of stopping out on a return to that range.

The second type of trader typically holds for longer periods of time:  intraday or multi-day/week swings.  The ideas being traded are typically less about short-term pattern recognition and more about themes that are emerging within and across markets.  For example, the bigger picture trader will see selling in stocks at the same time that there is buying in bonds, driving yields lower.  The trader identifies this as the start of a risk-off theme in the market and might buy defensive stocks and sell growth shares.  The intellectual challenge of finding and exploiting themes is a major motivator for these traders.

When the fast trader attempts to trade longer time frames, the near-term pattern recognition (a strength) can actually pose distractions.  When the bigger picture trader attempts to trade short time frames, the intellectual curiosity/creativity of finding themes (a strength) can actually interfere with timing.  In other words, problems with our trading may not occur due to our weaknesses, but because of a misapplication of our strengths.

What we do well and what speaks to us is our surest path to success.

Further Reading:

Mastering the Positive Psychology of Trading

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