Know Your Trading Style
So what type of personality style are you? And how does this suit becoming a trader? Most of us are a mix of several different styles — both good and bad. See if you recognize any of the following.
Some tackle trading with enthusiasm, following the promise of easy money. Sooner or later they fail and, blaming either their broker or training course provider, they give up in disgust.
Some blame themselves: “I suck at everything — so why do I bother trying?”
Some when they fail, remind themselves that no-one ever won by quitting. They persevere, but repeat the same mistakes over and over again — and are left wondering why they don’t achieve better results.
Some pursue the perfect trading system. Always switching from one system to the next. Always latching on to the latest fad. Or following the guru of the month in the vain hope that they have the answers.
The yips, a golfing term, are not only experienced by professional golfers who freeze over a putt. There are darts professionals who struggle to release their dart — and traders who cannot pull the trigger. They wait for the perfect set up, allowing pressure to mount until it impairs their performance — ensuring that they do fail.
Some keep scant records of their trades and can only tell how well they are (or aren’t) doing from the depleted state of their bank account. They prefer not to reflect on their failures as it makes them feel anxious or depressed.
Some religiously follow the market, keeping copious records and constantly trialing new systems — without ever buying a stock.
The opposite approach the market with supreme confidence, committing their entire capital when just starting out. That is about as sensible as entering a professional boxing tournament after just a few lessons at your local gym. The market will ruthlessly expose your inexperience.
Successful traders are initially cautious about entering the market. They paper trade for a while, before committing a small amount of capital. When confident they have learned the ropes, they gradually increase their exposure while closely monitoring their performance.
They keep meticulous records of each trade: the reasons that they entered and exited, the capital committed, and the profits or losses made. They can tell you exactly what trades they were in during the crash of 1987 or when the Dow broke 10,000 — also why they were in them, and when they exited.
Whenever they fail, they take time to reflect on where they have gone wrong. They review their records and identify areas of weakness in their trading approach. They seek advice and study available literature, only returning to the market when satisfied that they have corrected the flaw. If they again fail, they repeat the process, gradually eliminating their mistakes until they eventually succeed.
Every action has a payoff. Many traders subconsciously expect to fail and the objective of the first eight styles is to avoid the pain associated with that failure. Some avoid failure by quitting early. Some persevere but don’t really make a serious effort — so they always have an excuse at hand. Some are so deflated when they incur a loss that they abandon a perfectly good system in the vain hope of finding one where they never have to incur losses. Some experience such anxiety that they cannot bring themselves to enter a trade. Some are in denial, never confronting their actual performance.
Successful traders, however, accept failure as an important part of the learning process. The last three styles are vital to becoming a better trader. Only by learning from our mistakes can we hope to perfect our trading style — and become the best trader that we can possibly be.
I must have read hundreds of trading books and cannot recall a single instance of a trader who succeeded with their first trading system. They all fail at their first attempt. What makes them different is how they respond to failure.
Feedback is the breakfast of champions.