Trading Styles, Personality Traits, and Financial Status (Finale)

How Your Finances Affect Your Trading Style

Whether you like it or not, your financial capability affects your trading health, and your trading style depends greatly on your financial status.

Like I said earlier when I categorized different personality types with varying styles of trading, the same can also be said for your finances, as someone dependent on others for basic financial needs (Student), would not be patient to consider position trading as a style of trading.

So, this is why you as a trader must know your unique financial situation and trade accordingly.

That takes me to the first topic for this article:

Trade Accordingly to Your Financial Situation

All fingers are not equal, so every trader has different financial realities and situations. Therefore, I have come up with a good suggestion for traders.

This requires every trader to categorize themselves under one of these three Financial Realities and also pick a trading style that best suits that reality.

The three Financial Realities are:

1. Student
2. Provider
3. Multiplier

If you remember in part one (1) of this article, I made mention of these three financial statuses, but what I only did was to give a surface level match of these statuses with your trading styles.

But now, I will go into details as to why a trader in a particular financial reality needs to consider a trading style over another.

Student (Scalping / Day trading):

By now you know which individuals I refer to as students in the financial spectrum, and these are people who are not earning money simply, and in most cases are dependent on a guardian for their livelihood.

Now, these categories of individuals can also be slitted into two (2) and these two groups are:

1. Rich Students
2. Struggling Students

Intuitively, you know the rich students represent the ones who are fortunate to have a rich parent or guardian who they can always fall back to and get financial assistance every time.

On the other hand, the struggling students are not as privileged as the rich students, because they are other middle class or lower-class parents or guardians.

These two students cannot be afforded the same style of trading, as they are not in the same financial spectrum.

So, I would say:

Rich students should find scalping okay, while Struggling students should lean more on day trading.

Why?

Rich Students (Scalping):

Scalping is very high frequency, hence risky and this can result to great financial loss if not careful, who other can afford this risk if not an individual who is being taken care of by someone else who happens to be rich or wealthy.

The rich kid can always stomach the risk because if things go sour, there is a safety nest, inform of more money to put back into a trading account.

This further gives more confidence in the market, and this individual, can stomach risk with large appetites, till success is found in trading.

Struggling Students (Day Trading):

These group of traders need to dial back on their risk hence their choice in day trading, as they can take their time to assess and take informed decisions, this group also are being taken care by someone but the difference is, the people taking care of them are not as rich as the former group, so there is no unlimited ask for money, hence the caution these group of traders must take in the market.

With all these said, this group still can stomach risk as there is a safety net and they should consider day trading, because it is not as risky as the former and they can keep doing this until they find success in trading.

What these two have in common is the fact that, if they lose it all, it won’t have a devastating effect on them, because they don’t have anyone depending on them, but their differences come in the fact of what they can afford to lose, as it is not the same. The rich student can lose more money than the struggling student, because his/her source can afford to keep giving.

The Next Category is:

Provider (Swing Trading):

Like I said in the first part of this article, providers are individuals who are taking care of a family, essentially bread winners in the middle class and upper middle class financial spectrum, and because of this they are more risk averse and think twice, thrice before putting on any type of risk.

Also, these group of people are usually busy which makes being Infront of the chart a hard sell for them, hence their natural gravitation to a calmer style of trading.

My advice to you if you fall under this financial spectrum, is to consider swing trading because swing trading affords you time away from the chart, and you only really need to be on the chart when you want to place trades or alerts.

How do you work this style?

Just set orders e.g. Limit or Stop orders, and set price alerts, so when price triggers your alert, you can quickly draw out your laptop and assess whether you want to take the trade or not.

Also, on the risk part, swing trading is good for these individuals, because they are not placing multiple trades at a time, they only trade once a week or in two weeks, holding the trade for good reward risk ratios.

They can also support their family with what they make in trading because once mastered you will take less losses than a scalper or day trader and you can enjoy the high reward profits, which is why this form of trading is perfect for the individuals in this spectrum, as it is an optimized mix between risk, reward and time.

Multiplier (Position Trading):

Multipliers are individuals, who you might consider rich, as they have had successful careers, and endeavors in the past before now considering trading as a means of making money, not even a living.

This group of people don’t have to be in front of the chart, day in and day out hunting setups in order to make money.

They are more relaxed when it comes to money, and they can be great managers.

So, my advice for you if you fall into this category is to consider position trading, whereby you place trades and leave it running for a long time. 1 month, even 3 months sometimes.

Because these traders don’t need to make stellar returns in the market, due to their capital allocation, they can be contempt easily with 2%, 5% of their capital per month, as they can just put about 1 million or 10 million dollars into the market.

A 40% return year over year on a 10-million-dollar capital investment is about 4 million dollars and they can perfectly live off this for the rest of their life.

These traders are blessed, as they are unable to relate to the everyday struggle of the average Joe trader, their approach to the market is more like value investing as if they are long on a stock or currency, they have checked the fundamentals and have determined that this asset is worth buying, so they ride the wave for a long time, amassing amazing reward to risk ratios.

I have talked about how to trade according to your financial status, and I bet you, if you consider applying the things I have discussed here, you will find that trading comes to you quite easily.

My Two Cents

I have always been a believer in the statement “To each his own”, the truth is that we all don’t have the same reality, and trying to take advice from someone with a different reality than you about a process that was unique to them can be dangerous.

This is why I have made sure to separate trading styles away from their ambiguity and put them into sections where you as a trader can pick a trading style that is truly unique to you, and not just because that is the style your mentor trades.

Imagine trying to position trade, with only 100 dollars to your name, and you get little money from your parents, in this case, frustration will be the order of the day.

Even, you are a family man with two kids and you want to be taking huge scalping trading decisions where you run the risk of being wrong on your first 2,3 trades, this sort of thing can affect your psychology badly and really set you back on payments if one day after 3 losses, you decided to revenge trade and eventually made the losses worse.

So, you get the point now?

That is it for this article,

Thank You for Reading.