Wingz
Registered: Apr 2012
Posts: 23 |
04-29-12 08:51 PM
Finding your Trading Personality
I’m sure you’ve probably heard that most traders mess with perfectly good systems or don’t trade them as they should. Even if they spend $2000 dollars on a system they still don’t follow all the rules correctly. Why is this?
Everyone has different risk appetites and feel different emotions when faced with the same market conditions, finding your trading personality is about choosing a strategy that has an edge and that you have the resilience and determination to stick to without screwing up. Are you the kind of person who is aggressive and likes to be correct? Are you the kind of trader that likes to read and research before taking action? – the best way to find out is to get out into the market on a simulator or with small size and see.
Finding the market to trade
- Stocks
- Bonds
- Options
- Equities
- Futures
You’ll have to do a lot of research into each to find the best one for you.
Determining your traders equation
(chance of success*profit) – (chance of failure*loss) = positive = an edge
The traders equation is a pretty simple concept that determines your edge. You need to balance your risk/reward ratio and your probability of making a winning or losing trade.
As a guideline if you’re a scalper at the beginning you should have equal risk/reward and a probability of success greater than 50%, preferably around 60-70%.
If you like to make money on swings then you’re going to have a lower risk/reward ratio, probably at least twice or more reward. But you will pay for this by having a lower chance of success, probably less than 50%, around 40% or lower.
When you first get started it’s probably better to go for trades with at least 60% success of moving X ticks up rather than down (given you go long). That was the case for me anyway, I found that if I focused on trades with a lower chance of success then I cherry picked them and missed the big moves.
My personal style prefers the swings more but I do scalp most of my positions with half or a third of my size to pay for some of my losses. I like the big swings though, but to force myself to take most setups I have the scalp component in there too.
Finding your trading style/method
Outrights
Spreads
Price Action
Systems trading
Technical analysis
Trends, Ranges, Reversals
Algorithmic trading
Fundamentals
Value trading
Market profile
Momentum trading
This list seems pretty pointless, there are lots of lists out there but the only way you’re going to get any insight into how you might like to trade is by researching methods, I only want to try and point you in a few potential directions. There is no best way – only your way.
If you’re getting started, this isn’t the route I started out on but it’s the one I ended up on – read everything you can about price action - basic trendlines, channels, swing highs/lows, moving averages. Most of the indicators are derivatives of price action and I feel they take me away from understanding the dynamics that are really going on in the market. I think learning about price action is a great foundation that can only help. Then move onto indicators to get a broader picture and choose what resonates well.
Timeframe
Pick your timeframe, I’ll focus this journal on daytrading but there are lots of timeframes to hold a trade – see which works best for you.
Conclusion
I’d recommend drawing out a mindmap and begin to research different markets, see how much margin you need, read about leverage, see the opening times and try to look at some charts. Even Youtube has a few really good videos of guys putting on trades and talking through them.
After that you need to see what your personality would prefer in terms of the traders equation. You will not have a 90% success rate and have a reward that’s 3 times your risk with consistency – edges are fleeting. Decide what’s best for you – it’s probably going to take a lot of time and trial and error. Don’t get stuck in the trap of looking for the best indicators, just study the basics and take the first step.
Get a brief overview of some of the different styles and go deeper into the ones you like the most. Then become a mono-manical obsessive freak and build your own strategy that fits you, following Bruce Lee’s strategy of taking what works best and discarding the rest.
As I develop my own strategy once I start I'll let you know the process I go through. With Oil Calendar spreads I assume most of it will be range trading, reading the orderflow and price action with some breakouts and measured moves. I might use an oscillator or market profile. There will probably also be some fundamental plays, spreading back months with the overreaction of the front month after some news. But I'm not sure - I'll see how it goes.
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