What type of trader are you?
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If you are new to the financial markets, it is important to know what type of trader you are. This allows you to define the main lines of your trading strategy, to determine your trading preferences. It depends on several elements.
There are thousands of trading styles, but they can be grouped into 3 main categories. To determine which category you fall into, answer the following question: What do you think if you see the following chart?
1 - Wow, a nice bearish acceleration. The prices have dropped well, it is a great opportunity to go long and benefit from the correction, and maybe even a reversal.
2 - With a bearish rally like that, you'd have to be crazy to go long. It's bearish! I go short every time I have the slightest opportunity. If there's a correction, that's good, I'll get a better price.
3 - It has dropped well but anything is possible. I am going to wait and see what happens, but I am considering both the rise and the fall.
If you answered 1, you trade against the trend. You're contrary. You are wary of the trend, you see possible turning points everywhere. This trading style is not the easiest. You have to know how to recognize when you are wrong quickly, and certainly not persist in playing out your scenario. Novice traders often make this mistake. Trading against the trend also requires reactivity. If you see signs of a recovery in the trend, you should swiftly cut your position.
If you answered 2, you are a trend trader, "the trend is your friend". This is the trading style most used by novice traders and is what many trainers recommend (wrong for some traders). You must then try to optimize your position entry points. Novice traders often tend to think that they can open a position at any time as long as it is in the direction of the trend. This is a serious mistake. You must manage your risk well and have a satisfactory expectation of gain (gain/risk ratio). You also need to be able to halt your desire to constantly take trades in the direction of the trend if you see signs of correction or possible reversals. Remember that every trend has an end.
If you answered 3, you are a break trader. The trend doesn't matter to you. What matters most is keeping an open mind to any opportunity that may arise when you see the potential for profit. You are in a way a mix between a trend trader and someone who trades against the trend. Be careful, novice traders often tend to want to trade everything. This is a mistake. You have to be able to detect signals that are worth it using your strategy. Not all signals are good to take. It requires some trading experience to identify them.
Once you have determined your trading style, you should steer yourself towards a trading method. There are 3 of them:
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Whether you are more a short term or long term trader simply depends on your available time. It is quite possible to trade for only 30 minutes a day, only short-term trading is prohibited. The more short-term trading you do, the more free time you need. If you have another job as well, focus on medium or long-term trading.
All trading styles (trend, against the trend, break) are applicable with day trading.
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Buy and hold trading is better for trend or break trading. Trading against the trend is to be avoided.
Each trader has his own specificities, preferences and personality. It is all these things together that enables you to define which type of trader you are. No one trading style or method is better than any other, the important thing is to practice the type of trading that suits you.
What is your trading style?
There are thousands of trading styles, but they can be grouped into 3 main categories. To determine which category you fall into, answer the following question: What do you think if you see the following chart?
1 - Wow, a nice bearish acceleration. The prices have dropped well, it is a great opportunity to go long and benefit from the correction, and maybe even a reversal.
2 - With a bearish rally like that, you'd have to be crazy to go long. It's bearish! I go short every time I have the slightest opportunity. If there's a correction, that's good, I'll get a better price.
3 - It has dropped well but anything is possible. I am going to wait and see what happens, but I am considering both the rise and the fall.
If you answered 1, you trade against the trend. You're contrary. You are wary of the trend, you see possible turning points everywhere. This trading style is not the easiest. You have to know how to recognize when you are wrong quickly, and certainly not persist in playing out your scenario. Novice traders often make this mistake. Trading against the trend also requires reactivity. If you see signs of a recovery in the trend, you should swiftly cut your position.
If you answered 2, you are a trend trader, "the trend is your friend". This is the trading style most used by novice traders and is what many trainers recommend (wrong for some traders). You must then try to optimize your position entry points. Novice traders often tend to think that they can open a position at any time as long as it is in the direction of the trend. This is a serious mistake. You must manage your risk well and have a satisfactory expectation of gain (gain/risk ratio). You also need to be able to halt your desire to constantly take trades in the direction of the trend if you see signs of correction or possible reversals. Remember that every trend has an end.
If you answered 3, you are a break trader. The trend doesn't matter to you. What matters most is keeping an open mind to any opportunity that may arise when you see the potential for profit. You are in a way a mix between a trend trader and someone who trades against the trend. Be careful, novice traders often tend to want to trade everything. This is a mistake. You have to be able to detect signals that are worth it using your strategy. Not all signals are good to take. It requires some trading experience to identify them.
What is your trading method?
Once you have determined your trading style, you should steer yourself towards a trading method. There are 3 of them:
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Scalper
: Scalping is a distinct trading method. It does not take into account your trading style. Scalping consists of placing a multitude of orders during the day to collect a few points on each trade. This method seems easy but in reality it requires a lot of experience in the financial markets. You have to be extremely reactive, have high stress resistance, be mechanical in your trading and have a good knowledge of technical analysis tools. Novice traders often associate scalping with impulsive trading, by feeling, when it is quite the opposite! You need to have iron discipline and the ability to spend several hours trading every day.-
Day trader
: Day trading is a trading method that attracts a lot of novice traders. It is trading that can be done on various time units. A day trader is often defined as someone who cuts all his positions at the end of the day. In my opinion, a day trader is simply a person who can devote time to trading every day. It is swing trading. Within this category, there are short, medium and long term traders.Whether you are more a short term or long term trader simply depends on your available time. It is quite possible to trade for only 30 minutes a day, only short-term trading is prohibited. The more short-term trading you do, the more free time you need. If you have another job as well, focus on medium or long-term trading.
All trading styles (trend, against the trend, break) are applicable with day trading.
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Buy and hold trader
: This trading method consists of building a portfolio over a longer or shorter period (1 month, 1 year, several years). The objective is to achieve overall profitability across all positions. If the investment is long-term, the position must be opened based on fundamental elements (fundamental analysis). Technical analysis is also useful to optimize your entry and exit points and to cut lines in your portfolio if reversal signals appear. The trader therefore remains active in his trading after opening a position. This trading method requires a lot of time at the beginning to identify the assets to put in your portfolio, but leaves you a lot of free time afterwards. You don't have to look at it every day.Buy and hold trading is better for trend or break trading. Trading against the trend is to be avoided.
Conclusion
Each trader has his own specificities, preferences and personality. It is all these things together that enables you to define which type of trader you are. No one trading style or method is better than any other, the important thing is to practice the type of trading that suits you.
