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Which type of trader?

  
  Education
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Which type of trader?

Traders

Please which one of the following belong to you?

there are many type of traders, an awareness of the varieties allows you to avoid the pitfalls.

THE DISCIPLINED TRADER.

This is the ideal type of trader, you take your profits and loses with ease, you focus on your system and follow it with discipline.Trading is usually a relax activity,you appreciate that a loss does not make you a looser.

THE DOUBTER.

you find it difficult to execute at signals, you doubt your won abilities.You need to develop confidence.Perhaps you should paper trade.

BLAMER

All losses are someones else ‘s fault, you blame bad fills, your broker for picking the phone up to slowly , our system for not being perfect, you need to regain your objectivity and self-responsibility.

VICTIM

You blame yourself, you feel the market is out to get you, you start becoming superstitious in your trading.

OPTIMIST.

You start thinking it’s only money , ill make it back later. you think all losses will bounce back to profits, or that you will start trading properly tomorrow.

GAMBLER.

You are in for the trill, Money is a side issue. Risk and reward analysis hardly figure in your trade, You want to be a player, want the buzz and excitement.

TIMID.

You enter a trade, but panic at the sight of a profit and take it far to soon, Fear rules your trading.

3 Biases That Affect Your Trading

  
  Education
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1) Gambler’s fallacy bias

People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?

It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.

Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.

2) Limit profits and enlarge losses bias

People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn’t hold a little longer (sounds familiar?).

One of the most important principle in trading is contrary to what most investors do – Traders have to LIMIT LOSSES and let PROFITS RUN. Losses are part and parcel of trading and hence, it is crucial to protect the capital from depleting too much – live to fight another day is the mantra for all traders. Large profits are thus required to cover the small losses – so do not limit profit runs.

3) I am right bias

Humans are egoistic in nature and we want to prove that we are right. High accuracy is not important in trading but making more money when you are right is. Remember what George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

3 Biases That Affect Your Trading

  
  Education
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Van K. Tharp mentioned there are 3 biases that will affect one’s trading:

1) Gambler’s fallacy bias

People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?

It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.

Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.

2) Limit profits and enlarge losses bias

People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn’t hold a little longer (sounds familiar?). (more…)

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