Trust your hunches. They’re usually based on facts filed away just below the conscious level.
– Dr. Joyce Brothers
The stereo typical image of a trader is the loud, brash, risk loving male who can ride out the twists and turns of the markets and then instinctively knows when to opt out. You are who you are and you have to acknowledge that in order to maximise your potential for success as a trader. To follow the fallacy that successful traders are all bold, risk taking, stress coping individuals is to ignore the realities or human nature and what the real recipe for success is when you are trading. To continue with the belief that in order to be successful as a trader is to trade every day, invest in the high risk vehicles and to never be afraid is to put at jeopardy more than just losing money.
Trading is all about risk management and strategy identification and a successful trader should match those to their personality. If you are more of an emotional nature, prone to losing sleep when faced with a risky situation or liable to fear when dealing with the unknown then it makes more sense to operate a strategy that is less risky. To do differently will only open the trader up to stressful situations and no one can operate at their best when in overdrive as thoughts become blurred and clarity of thinking is no longer available. So whilst it might seem limiting to opt for the higher potential returns the reality is that a winning trader will recognize that they are not of a character that will be able to cope with the uncertainty or risks and would probably opt out of the trades before the optimal moment.
Sometimes it is also not all about being risk adverse or boldness that is the problem but other traits that can cause a trader to trip up. A prime example is when a trade has been set up and exit points identified that then get ignored as the trader suddenly believes that they can ‘feel’ the markets better or they get carried away with the potential for even greater profits. This ignores one of the prime rules that successful trading is about the numbers games in terms of percentage of wins versus losses as well as size of wins versus size of losses built on continued application of a strategy. A trader who knows that they run the risk of throwing all their rules out of the window on a whim or a market move should use the option for setting up stops on all their trades. Or indeed opt out of the type of trades where the risks are higher as whilst it may play in their favour once or twice, in the longer term they are likely to suffer more losses than wins.
When considering personality and strategies a sensible and successful trader will take the time to look at all the options and that includes considering whether they would deal better with day trading, medium term position type trading or long-term investments. The key is to make the most of their traits and skills and use their personality to work in their favour. Going too far outside their personal comfort levels of investment management is to set up for failure. Recognition of personal strengths and weaknesses will only aid the overall profit potential as it takes out the doubts and second guessing and focuses on the act of trading, which is obviously the name of the game. However it is essential that the trader can then step out and know when a trade type or event is going to cause them problems and work out a coping strategy as the reality is that the markets are dynamic and therefore there will always be events that can cause problems for those unable to deal with stress. If need be run some tests in a virtual world for a while but at some point the trader has to step up and commit real time.
The nature of the game is knowing when to get in and when to get out and how to follow the markets and that needs, no matter what the personality of the trader, to step out and put their money on the line.
How this is done really should be based on the personality of the trader and not be based on the fictional image of what a trader should look, sound and behave like. A successful trader is in control, knows to the best of their ability what is going on and how to operate within the world they are. Do things your own way and you can become one of those ‘rare’ consistently successful traders.
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