WHAT TYPE OF TRADER OR INVESTOR ARE YOU? – December 23, 2022
Trading and investing are much more complex and challenging than most people think. While countless books have been written about how to trade and invest, most skip over what I consider to be the foundation and most important area – You!
The Brutal Truth
The financial markets are driven by fear and greed. Most individuals find this costly as they get sucked into large news-driven moves in the market that often quickly reverse direction. Or they fall in love with a stock or commodity and decide they can’t sell even when it’s pulling their entire account balance down, causing serious financial harm.
The brutal truth is that if you don’t understand what type of personality you have and how to control your emotions, then you are doomed before you even get started.
Also, if you don’t understand where you stand within your trading skill set, and your available time to learn and focus on the markets is limited, your results are also doomed.
It does not matter how well you can read the charts using technical analysis if you don’t fully understand who you are at an emotional level, and then use strategies that fit within your capabilities and available time. Still, technical analysis is critical for your success.
Trade In A Way That Makes It Simple and Fun
I prefer swing and position trading to get the most out of my time and the market and live the lifestyle I want. Keep in mind am not a full-time trader; I am a dad and adventurer who semi-retired at the age of 27, so I could pursue all kinds of fun things. I do not want to watch the charts all day, as it’s a huge waste of time for my personality, trading/investing style, and ultimate goals.
Being married to the charts all day is only for day traders and those who want to become full-time traders aiming to trade a lot. But as most of these people figure out eventually, full-time trading is a JOB, is less fun than they initially thought, is more stressful than anticipated, and is super time-consuming.
My main focus is on slow trading styles, with the bulk of my trading and investing accounts using a risk-controlled growth strategy. There are times when the market simply does not generate any low-risk opportunities, and I have gone a few months without placing any trades, and I’m fine with that. Generally, those are times when stocks and/or bonds are falling, and cash is the best investment for that market condition.
The Good News
The good news is that I have mastered these shorter time frame investing strategies (Swing/Position trading). These opportunities pop up on the chart every few weeks, giving me two huge benefits. The main one is that it satisfies my urge to trade. And why is this important?
Simple. Traders are naturally addicted to being active and feel they need to place trades often. If your primary trading strategy is not giving you any trades, you can become stir-crazy. You eventually search for something…anything…to trade just to satisfy this urge. This leads to bad trades and can actually create a bad habit of straying from what you know works to a more random discretionary trading path that you do not/should not go down.
The other major benefit of trading within your personality type, skills, and available time is that you enjoy the process and feel you are in control of your future.
It takes time, skill, and self-discipline to refine a strategy, so it’s repeatable and not rooted in emotion. No matter what type of strategy you choose to trade, one of the most critical skills that separate highly successful traders from the rest of the pack is the ability to watch the action in the market and execute trades based on what the market dictates vs. what you want or feel like trading. That’s a very different perspective than simply executing trades based on what your internal emotion dictates.
When you understand market dynamics, you can translate knowledge into profits. A well-thought-out, rule-based system prevents you from making impulsive decisions. When you are prepared for every scenario, you won’t be tempted to react emotionally. You’ll take action based on proven technical analysis and your rules instead.
Technical Analysis Makes You Better
Technical analysis isn’t just a method to analyze market action; it is a foundation from which to work. It’s about seeing cyclical patterns and understanding that there is an order to them amidst what might otherwise seem confusing and chaotic. Once you can understand the motivations of market patterns and anticipate what might occur next, you’ll see that even though market conditions can change, there’s still a cyclical movement of capital through the markets.
The market is not random. There are consistent psychological motivations of humans at play, and there are consistent patterns in the market structure which I show and teach weekly to fellow traders and investors who want to improve their trading and protect their wealth. And to take things one step further, the exact strategy I trade with my retirement capital can be automatically traded for followers in their own accounts. This keeps things simple for those who are busy and don’t have the time or desire to learn how to trade the markets themselves.