Everyone who hears you are starting out as a trader will tell you that you need to develop a strategy that will fit your personality. The problem is that not many people can tell you how to do that. A trading strategy is not just something that you pick up and start using. It needs to be developed, tested and tweaked to suit your trading style and to be successful. Many beginner traders fail and often this is because they randomly pick a trading strategy and use that, instead of spending the time and effort creating their own strategy. Here we will take a look at how to understand your trading personality and apply it to your trading strategy.
How Personality Relates to Trading
Your personality will help you understand how you will trade and this is important for creating a strategy that will work for you. For example, if you are aggressive, you might enter trades too early, while if you are anxious and fearful, you might miss entries even though they are right in front of you. Keeping this in mind will help you create specific aspects of your strategy so that these traits are kept under wraps while you are trading. In the same way, you can use your personality to the benefit of your trading if you understand yourself and the options that are out there. For example, traders who are impulsive will do very well on trades that only last a few seconds before the next trading decision needs to be made. On the other hand, those who are deliberators and need time to make methodical decisions will do well as long term investors or swing traders where there is time for slow deliberations and thoughtful decisions. Day traders commonly fall somewhere in between. They like to consider the information, but enjoy making fast decisions.
An Ongoing Process
Those who think that once they have created a strategy, they will be done with the work, are certainly not correct. Trading is an ongoing process of honing your strategy and tweaking your trading plan. And this includes analyzing your personality and how it has affected your trades. This is particularly relevant when you make a mistake while trading. Question things such as were you too impulsive or did you not get out of a trade when you should have? This is the time to consider that perhaps you should think about a different type of trading that will better suit your personality. If you are able to constantly question how well your trading strategy is related to your personality, you are much more likely to be successful as a trader in the long term.
Trading strategy is not black and white and what works for one trader will not necessarily work for another trader. Make sure you understand your personality and how it can affect the decisions you make as this will have a direct impact on how successful you are a trader. Never be afraid to question yourself and your strategy.