One of the main reasons for traders faltering in their performance is they are not following strategies that suit their personality traits. As a result, many traders are not able to yield optimum results from the trading strategies that they follow. Adopting a trading style that does not come to you naturally invariably gives fewer results as opposed to following your own natural style. However, many traders, including expert traders, have a misconception regarding this.
Busting The Aggression Myth
People have a general misunderstanding that aggressive strategies are needed to bring profits. To say the least, this is wrong to the core. There is a greater element of risk involved in highly aggressive strategies. The fact is that when you consider net profit taking a longer duration of time into consideration, there won’t be significant changes between an expert using aggressive strategies and one playing safe games. If that is the case, then why should one choose a strategy that does not suit his/her temperament in the first place?
Here is where a quote from Bhagavad Gita becomes relevant. The author opines that preference should be given to duties that suits one’s own personality traits, even if they cannot be done in a perfect manner. Performing duties that do not suit one’s own personality traits, even in a perfect manner, is fraught with danger.
Why Choose Strategies Based On Temperament?
That which does not suit our natural inclination is bound to cause stress in our mind. Whether you do it with perfection or whether you succeed at a given task does not change this. The emotional stress is formed first and is not washed away by the success that follows. And slow build-up of such stress will later affect your overall performance. Therefore, when it comes to stock or forex trading, a trader should ideally not choose trading strategies that do not suit his/her own temperament.
Why are there many trading strategies?
One of the major reasons why we have different trading strategies is precisely because of this difference in personality traits among traders. Some strategies are aggressive while others are safe. To get consistent profits, one should choose a strategy that suits his/her own temperament. This helps to use one’s own attitude, perception, and coping mechanisms to its optimum advantage.
How to handpick strategies that suits you?
There are multiple time frames, multiple strategies, and multiple lot sizes for you to choose from. To find the one that resonates your temperament is not a task that can be finished overnight. However, it is definitely possible with a little bit of patience and honest thinking.
This involves two steps:
- Determining your trading temperament
- Handpicking strategies that meet your temperament
Determining Your Trading Temperament
In order to find out your trading temperament, the best method is to seek help from an expert coach. Going through your trading journal can also help you find out what sort of a trader you are. Alternatively, you may also read books on this and discover the type of trader you are.
Handpicking Right Trading Strategies
A similar analysis of different trading strategies should also be performed. For instance, pyramiding is considered to be an aggressive trading strategy. In pyramiding, you increase your margin by using unrealized returns from successful trades. In order to scale into a winning position, you buy or sell after the market makes an extended move in the intended direction. This strategy has the potential to double your earnings but at the same time carries the risk of losing a significant amount. Therefore, being almost right in your decisions is not enough – you should be absolutely right and execute your plan with clinical precision. Thus, it is considered a very aggressive strategy. So, if your temperament matches this sort of trading, then you can pursue it with confidence.
On the other hand, swing trading is less aggressive and more like a play-it-safe strategy. In swing trading, you carefully study the movement of the market, the hidden patterns and the like, and wait for the right opportunity to enter your trade. There is a lot of home work involved in this type of strategy. But it is comparatively less aggressive and a lot safer. If you are a kind of person who live your life more or less in a safe play game way, then swing trading is the best bet for you.
Thus, in short, this is the most simplest and natural way to work towards making consistent gains – follow your natural temperament, choose strategies that match them, execute them in your own style!
However, you may need the help of a trading coach or mentor in this whole process of identifying your personality trait, weighing different trading strategies, and choosing the one that suits you the best. When you undergo professional mentoring and thorough training on different strategies, you will be able to achieve this goal of following your own temperament with great success.