Understanding Your Trading Personality
by David Graeme-Smith - Short Swing Trading
You may think this is an odd subject to cover but it is vitally important and is another
fundamental ingredient when designing your trading strategy. Let me explain.
We all have different personalities, some people are very extrovert while others are shy and retiring. Some
people thrive on taking risks, others want guarantees on everything before they make a decision and even if
they do take a risk, they want to sue someone if it all goes wrong.
My guess is that if you have got this far reading about trading, you are prepared to take some risk at least.
The trouble is, that unless you have some experience of trading and losing, you will not know where your risk
threshold is.
Try the following test. This is not scientific; it’s mainly for fun. Read each statement and score yourself
on a scale of 0 if you strongly disagree to 10 if you strongly agree. Then total your score at the end.
Statements:
1. I believe you have to take risks in life or you will look back with regret.
2. Fixed interest investments don’t even keep pace with inflation.
3. If you don’t have an overdraft you lack imagination.
4. I drive fast even when I am not in a hurry.
5. I regard a loophole in the rules as a window of opportunity.
6. I like the adrenaline rush of risky and extreme sports.
7. I always add on a few extra items to an insurance claim.
8. I would sell a car for more than it’s worth if I could get away with it.
9. I always try to knock the price down on things I buy.
10. I always respond to chain letters promising to make me a fortune within the next few weeks.
11. I am always so rushed for time that I have to eat or do my make up while I’m driving.
12. I regularly try to anticipate when the lights will change at a junction to beat the other cars away.
13. If my credit cards mount up, it doesn’t worry me as long as I can make the minimum payments.
14. I always say what I think and don’t care if it upsets people.
15. If I can find a way of doing something quicker I will.
YOUR TOTAL POINTS = ______
Total your score and check your risk rating below.
YOUR RISK PROFILE.
0 to 40 You got this article for free so you might as well read it, right. But you won't start if it's past 9
pm in case it keeps you up. Take my advice, make a cup of hot chocolate and get an early night! Try to start
life tomorrow.
41 to 80 It’s ok, you are pretty normal but be worried about any individual score where you have 11 or more.
81 to 100 Get therapy immediately! Do not use sharp implements and cut down on caffeine. Try to sell this
article to your grandmother to make a profit and think about a career as a bank robber - you should do well.
That was just a bit of fun but the statements are based around three basic but important personality traits:
-
Worry
-
Patience
-
Risk taking
Let’s look at these in more detail.
The amount you worry about things will determine how you view a trade before you even take it on. It also
determines how you will react if a trade begins to go against you.
If you are a worrier you could also have real doubts about your strategy if you get three or four consecutive
trades that don’t work out – you will not have the confidence to continue and let the law of averages work
over a longer period.
You could also be tempted to take a profit and run in case the trade turns against you instead of sticking to
the strategy that could make an even larger profit.
Patience is important in trading. Sometimes things just don't happen when you want them to.
Risk and reward are inextricably linked. It is absolutely true that the more risk you take, the more
POTENTIAL reward you might get - BUT:
The more risk you take, the more worried
you are likely to be and therefore the more you are tempted to make an emotional decision rather than stick
to your strategy.
Trading decisions based on emotion rather than a set of rules (strategy) will ALWAYS get you into trouble in
the end.
Sometimes you will be lucky and your hunch will be right. Unfortunately, that will lead you to make even more
emotional decisions and at that point you might as well forget any strategy completely and trade on instinct
and emotion.
Read more here
Short Swing Trading by David Graeme-Smith
******TRADING EMOTIONALLY IS A RECIPE FOR DISASTER******
!!!!!! GREED AND FEAR ARE THE TRADERS WORST ENEMY!!!!!!!
There is a good saying in trading, which is, “Cut your losses quickly and let your profits run.” This
oversimplifies a complex problem and the answer actually lies in using a sound strategy AND
sticking rigidly to it. Being able to stick to the strategy is where your personality comes in.
It is also said that traders who let losses run hoping they will turn round will go bust very quickly whereas
traders who take profits early will go bust slowly but BOTH will go bust.
The first rule of trading is to preserve capital - without it you cannot trade!
The strategy I have developed and trade every day is called the "Short Swing Strategy" and is designed to
help you manage risk to any level that suits your own personality. It will allow you to determine the maximum
risk you are prepared to take on, even before you open the trade. This is due to an extremely precise but
reliable way of using an initial stop loss and calculate position size.
It will allow profitable trades to run without watching a large profit turn into a loss because of a simple
but effective system of trailing stops.
In short, it WORKS! It allows me to sleep at nights knowing that I make 11% per MONTH on average (that's over
150% p.a. compound) and I haven't had a losing month since I started trading the system.
I have published my complete strategy in a book called "Short Swing Trading" which is immediately
downloadable from my website:
Short Swing Trading by David Graeme-Smith |
