Which Type Of Trader Are You?


Traders must always remember to develop a style that reflects their personality and is individually suited to them.

Most individual trading styles are either a combination of techniques or positional in nature. It’s pretty uncommon though for a trading style to be both.

There are a number of dominant trading styles that occur despite the differences in personality, education, experience and all the various facets that go into the preferred style of a trader. Let’s take a look at the common ones below:

Positional traders

Positional traders take a certain number of positions within a certain price area when the market is looking favourable to their strategy.

These can occur on short term weakness when the long-term trend is a bullish one. A known risk is assumed for a certain profit-taking area, and positions remain in place until profits or losses are taken, or the price action nixes the trading strategy.

Such traders hold their trades from a few weeks to a few months, which is ideal is a trader cannot watch the markets all day, or if the trader wants to avoid entering and exit markets on a frequent basis.

Combinational traders

These traders are known for being less ‘patient’ than positional traders in that they seek immediate results or will exit trades quickly.

These traders usually take on extra orders as the market moves in their favour, thus building up big positions for quick 2 – 6 day price moves. They then take their profits and exit.

Those who favour combinational trading enjoy putting options together into various combinations, resulting in some unique risk/reward profiles.

However, this form of trading may not necessarily be lucrative, as there is no magical combination that allows a trader to consistently produce positive returns.

System traders

These traders follow a trading system discipline whereby a series of analyses are conducted to determine whether to buy or sell based on signals derived from technical or fundamental analysis.

Usually, system traders use technical signals to create a buy or sell decision, when such signals point in a direction that has historically led to a profitable trade.

System traders use either manual or automated systems. The former involves sitting at the computer, searching for signs to buy or sell; the latter revolves around the trader teaching the software what signals to look for and how to interpret them. Automatic systems are good in that it removes the emotional component of trading that can cloud a trader’s judgment.

Method traders

The method trader is different from the system trader in that a method trade can follow a system with no discretion or be traded with discretionary intervention.

A method trade allows a trader the ability to change parameters. The method system also gives full disclosure of all its parameters and the logic behind the trading method.

The method trade isn’t exactly based on rationale, rather it is based on statistics. That is, when a certain pattern or setup occurs, and the trader behaves in a certain manner, the result is statistically in harmony with the probable outcome.

The complete trader

This trader can combine all or parts of the above approaches with an individual, personal style.

But in order to be a complete trader, one must be a master of observation and judgment, and have the ability to take decisive action when it is called for.

Carl Capolingua
Follow Carl on Twitter @CarlCapolingua
Head of Education
Australian Stock Report

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