Find the right strategy
The main purpose of this page is to teach you how to find the perfect trading strategy for your trader personality. Beginner traders have usually a messed up idea about what a trading strategy means. A trading strategy is not something you choose from the store, or something you pick up in a trading forum. It is a set of proven rules and principles which have to have a meaning for you and they need to match your trading personality.
Choosing a trading strategy by default and applying it to your charts is one of the reasons why the majority of all traders fail. So, we will show you how a trader personality impact the trading strategy and how you can be aware of when it comes your turn to choose the strategy.
Determine Your Trader Personality
The very first moment to find the correct trading strategy is defining your own personality type. There are three main types of personalities, you just have to check where you find yourself better:
► 1. The Aggressive Bully
He is easy to notice trader since he is all the time talking about his big positions, big winners and also likes to impress with huge losses he experienced as a real man. He continuously shares pictures of expensive stuff he has in his life. He is the get rich or die trying kind of trader.
► 2. The Greedy Scrooge
This kind of trader loves to talk about risk and money management, he is passionate about numbers, statistics and playing it safe. He will be all the time protecting his capital by controlling mechanisms like stop loss and take profits. Control, risk, slow but steady gains and always the finger on the mouse are the traits that mark a greedy trader.
► 3. The Anxious Wimp
He is all the time questioning and reaching out for other people’s opinions. He talks most of the time about potential trades he sees on his charts. It is very easy to spot an anxious trader because usually he will not enter the trades that he talked about because they ‘didn’t feel right’, or he will enter a trade late because he ‘was not sure’.
How to know what type of trader are you?
1. You often miss entries even though you see them evolving right in front of you.
– Signs that you are an anxious trader.
2.You enter too early without waiting for confirmation of your trading rules.
– You are definitely a greedy and/or aggressive trader.
3. You regularly execute your take profit order too late and see price reversing, giving back profits.
– Your greed impulses cannot get enough.
4. You close trades too early before your take profit to secure profits.
– This is a sure sign that you are a wimpy Scrooge.
Fine-Tune Your Strategy Parameters Based On Your Personality Type
The majority of traders are not willing to come this far. If they lose money with a trading strategy, they give up thinking they cannot do better, their strategy failed or lose too much time trying to find an explanation for a losing trade. A determined trader with a professional and winning mindset accept that a trading strategy cannot be a moneymaker by 100% of the chances and there are multiple factors to understand. It is important to know and adapt to yourself the trading strategy parameters and see how your personality interacts with them.
► 1. Trade-Frequency and the choice of timeframes
Observe how often do you decide to open a position depending on the timeframe you follow. Whereas following the 4 hour or daily timeframe may provide one signal ever one or two weeks, the 1 hour or 30 minute time frames could generate a new entry signal every few hours or once per day.
► 2. Holding time
The time a trader is holding their position open bring the problems of managing the trades. Greedy and aggressive traders tend to widen taken profit orders.The anxious trader constantly fears a reversal and will close trades ahead of the take profit target, cut winners and thus lower the expectancy of his trading strategy. In general, the longer the holding time, the more chance for a trader to ‘mess around’ with a trade.
► 3. Win rate vs risk:reward
Some trades find it difficult to understand the statistical and probability part of trading. For some of them it is therefore hard to trade with a chosen trading strategy that has a relatively low win rate. Everyone is trying to go for a high rate of winning and a low rate of risk. A trader has to find the optimal combination of risk:reward ratio and winrate for his personality.
► 4. Your risk level per trade
To begin, once you understand your personality type you will understand how you can manage your emotions over a certain amount of risk per trade. When you need to find your optimal level of risk, ask yourself how you can manage large loses and if it is okay for you a slower but steady capital growth. If you get uncomfortable after some loses in a row, a trading strategy with a low win rate and a high risk per trade is not going to be the best fit for you.