EVERYTHING about trading is different when you have your own money on the line,” says IG Markets’ David Jones. “Far too many people think they need to find a magic trading formula, but really their time would be better spent learning from their mistakes.” Indeed, Amplify Trading’s Will de Lucy trains his traders to do just this: “Everyone addresses risk in a different way, so identifying your trading personality’s strengths and weaknesses is fundamental to improving your strategy.” To help you spot yours, we consulted Dr. Van Tharp’s and de Lucy’s research and put together this guide.
NO. 1: THE THEORIST
Theorist traders are the scientific types, usually chartists who like planning out strategies in advance. These are the kids that always got As at school and feel most comfortable when they can go back to the books. They put their stop losses wide and are willing to wait until the right market circumstances arise. The main problem with this approach is that they execute too few trades and are often inflexible when patterns change. De Lucy says theorists should try to break this cycle by doubling the number of trades they do on an average day.
NO. 2: THE PRAGMATIST
Pragmatists are goal-driven folk. They will flip from one strategy to the next when circumstances change. They often don’t have a theory, reacting mainly to news and momentum. These guys are probably the most successful, but would benefit from keeping a trading journal, regularly looking back and checking to see if they were reacting to the right signs. Jones says: “Trades often look very different when you come back to look at them with a fresh pair of eyes.”
NO. 3: THE REFLECTOR
The reflector constantly looks for situations they have seen before. These traders want to predict, control and explain markets, which rarely works because they are so slow to react. To remedy this sort of behaviour, traders should throw themselves into a fast-moving market to force themselves to react more intuitively. De Lucy recommends picking a day full of data releases to do this: “These sorts of traders just need to build up their confidence.”
NO. 4: THE ACTIVIST
Activists are fast movers, often called “scalpers” who dive in and out of trades. They are impatient and easily distracted, but great at spotting momentum. This group has strong intuition, but will really benefit from a bit of reflective thinking. They should pledge to reduce their daily trades by half to slow themselves down.