Trading Styles, Personality Traits, and Financial Status (A Three-Part Series)
Have you ever wondered why you keep getting frustrated by your trading strategy?
If that is you,
This article will present a solution to your seemingly never-ending problem
I will be looking at the following topics in this article
- Different Styles of Trading
- Different Personality traits
- Know your Financial Bracket
- How do your personality traits affect your trading style
- Trading Giants and their styles of trading
- Suggested trading style for your personality type
- How your finances affect your trading style
- Trade according to your financial situation
- The right approach to trading for both financial spectrums
- My Two Cents
Different Styles of Trading
There is a method to every madness and a set of processes unique to each individual, no two people can be the same, because everyone has what works and doesn’t for them.
In this topic, I want to discuss all the trading styles regarding the time positions are held.
We have 4 trading styles, which are as follows. When it comes to how long positions are held or in what time frames position analysis and entry are taken, these are as follows.
- Scalp Trading
- Day Trading
- Swing Trading
- Position Trading
Scalp Trading:
This is the shortest and most narrow form of trading, as it requires the trader to look at the minutes and mostly seconds chart, looking for quick and sharp movements in the market. Scalpers don’t concern themselves with fundamentals most times, as they are 98% technical traders, who just want IN and Out involvements with the market.
A scalper generally doesn’t stay in trades past an hour as they are just looking for quick pip or point movements in the market to call it a trade or day.
Scalpers start their analysis on intraday time frames not going over the 4hr TF in most cases and walking their way down to the 1minute or seconds which they take entries from.
Scalpers will be okay with less reward risk ratios for example a 1:1 as they just take trades of as it turns a profit, scalpers don’t shoot for more than 5 to 20 pips in the forex market, and 5 to 10 points in the futures market.
Scalping requires constant sitting in front of your computer and nursing trades back to back, scalpers can take up to 20 to 30 trades in a day, and the frequency is super high.
Day Trading:
This is a longer and less narrow form of trading compared to scalping, as it requires the trader to look at longer-term time frames to determine the directions markets want to take for the day.
The day trader concerns himself with getting most of the daily range, with proper use of higher time frames and fundamental news drivers, day traders can do this.
A day trader will stay in trades for an hour to a whole day, sometimes over a day so they can get most of the daily range.
Day traders start their analysis on the daily time frame for directional bias and 4hr TF for the draw on liquidity, supporting their bias and walking their way down to the 15 minutes or 5 minutes for risk-adjusted entries.
Day traders have an average or above reward-risk ratio as they are a more patient breed when it comes to taking profits in the market, they would go for RR’s-like 2:1, 3:1 as this can be a target of 20 to 60 pips in the forex market and 25 to 100 points in the futures market.
Day trading requires sitting in front of your chart when hunting setups but a trade or two a day is okay for a day trader, which means it has less frequency compared to scalping.
Swing Trading:
This is a long-range trading technique with a broad view of market sentiments, as it requires the trader to look at long-term time frames and even fundamental events before forming an opinion about the market and where it is headed.
This form of trading depends heavily on Intermarket analysis and correlation because you need to know how positively or negatively correlated markets are before you establish your long-term directional bias which will unfold over a long period.
Swing traders concern themselves with long-term and intermediate-term swings in market direction as they hope to ride positions that long.
Swing traders will stay in trades for a week to two weeks and sometimes a little over 2weeks to make sure they get a good portion out of the market over the course of weeks.
Swing traders can start their analysis on the Daily, weekly, or monthly time frame for a bias and enter on the 4-hour timeframe.
Swing traders have a very large reward-risk ratio as they hold trades over a long time compared to day traders and scalpers, their RR’s are to the tune of 4:1 – 10:1, and they aim for targets of over 80 pips to 200 pips in the forex market and over 200 points in the futures markets.
Swing traders do not spend too much time on the chart as they can go days on end without looking at the chart if they are not in a position, they just set price alerts and get notifications when the price approaches their Points of Interest.
Position Trading:
This is the longest-range trading style with a very broad and global view of the market sentiments with an 80% fundamental approach and 20% technical analysis in forming opinions in the markets.
This form of trading requires you to be conversant with a lot of sectors that affect the asset you trade, as for forex, you need to be very familiar with the fundamentals and technical of the interest rate markets, as for Gold, you need to be familiar with the commodities market because you will use all these in determining and forming opinions of the market.
Position traders concern themselves with quarterly and long-term shifts in market direction, they want to know where the market is headed this quarter, or Bi-annually, because they are holding their trades that long.
Position traders will stay in trades for a month, a quarter, six months, or a year as they are mostly focused on fundamental and global macroeconomic events.
Position trading is the closest form of trading to value investing, as they are more interested in the intrinsic values of assets when they are long and aren’t shaken by short-term market fluctuations.
Position traders start their analysis on the monthly or Yearly chart and walk their way down to the weekly or daily for entries.
The reward-risk ratio Position traders go for is enormous and depends heavily on the needs of the trader or the firm.
Position traders barely spend time in front of price charts, as they are more focused on news and not just any news, macroeconomic news events, the type that affects industries and sectors, e.g. recessions, climate change, or political policies.
Position trading is mostly used by hedge funds and Investment banks.
Different Personality Traits
There are different personality trait types in existence, but for this article, I will be talking about the ones that apply.
According to a theory, personality types are divided into four (4) types and they are as follows:
- Type A: Perfectionist, impatient, competitive, work-obsessed, achievement-oriented, aggressive, stressed
- Type B: Low stress, even-tempered, flexible, creative, adaptable to change, patient, tendency to procrastinate
- Type C: Highly conscientious, perfectionist, struggles to reveal emotions (positive and negative)
- Type D: Worrying, sad, irritable, pessimistic, negative self-talk, avoidance of social situations, lack of self-confidence, fear of rejection, appears gloomy, hopeless.
So, these are some of the personality types compressed into this four (4) model, and knowing the different types of personality is quite important to know where you fall in, now it is very important to know that you don’t necessarily have to be in a type completely, you could have a little bit of each type, for example:
A person can be very conscientious and also be a very patient person, the two can belong to the same category, and they don’t have to be separated by type, I am stressing this because over the course of this article as a whole, I will mix some personality traits across types to make a point for a type of trader.
This is not a psychology class, so I won’t go deeper than this, so let us consider the next topic.
Know Your Financial Bracket
The saying All fingers are not equal can’t be truer, because everyone, depending on where they are, belongs to a different financial bracket.
I would be dividing financial brackets into three main headers, and you should fall into one of the brackets.
When categorizing the financial brackets, I like to separate them into these three main parts.
- Student
- Provider
- Multiplier
Student:
Who is a student? I like to think of someone who is not yet making money and still is dependent, on a guardian. Now saying this person is a student is not a literal term, but just describes the financial situation of the person. There are nuances in this category, because individuals could be relying on rich, average, or poor guardians and it could determine their risk spending, and by risk spending, I am talking about money they can afford to lose, but a general rule of thumb for people in this category is this, they always have a lot of time on their hands. So, individuals in this category generally can afford to take on more risk and won’t in most cases have a devastating consequence.
Provider:
Who do we refer to as a provider? I categorize anyone who is earning money from a job or small business and has people who depend on them for financial assistance as providers.
Now, there is no telling whether these individuals are well-to-do or struggling, the general idea is that they provide financial assistance to people around them whether family, friends, or others.
A general rule of thumb for people in this category is this, they are mostly busy people with a 9 to 5 or a business that requires a lot of their time and undivided attention. So, individuals in this category are more risk averse and think twice when putting money at risk, and need to get value for every dollar spent.
Multiplier:
Who is regarded as a multiplier? I would say, anyone who has been successful in one or more endeavors and has enough money lying around to be put into another endeavor, these people are thriving and have experience with making money.
The general idea is that individuals in this category are either CEOs, top executives, or even investors. Yes, even 9 to 5’ers can be in this category, provided they have been able to make a lot of money and enough to put into some investments that cashflow.
A general rule of thumb for individuals in this category is this, they are capable of sourcing a considerable amount of capital to fuel a business start-up and they can also be very busy people but mostly by choice.
They can be money experts so their years of experience have taught them to be patient with money and they don’t need large and unseen percentage returns because they are capable of investing large amounts of capital at a time.
That will be it for this week, next week we go into how your personality and finances affect your trading style.
