Sheep, Pigs, Cheetahs and Lions: The Four Personalities of Traders (Part 2 of 5)

The first trader personality or mentality is a sheep. A sheep is lost. They’re afraid. They do a lot of demo trading and don’t have a lot of focus. You can identify a sheep when they've been testing for three or more months.

What do they think they are going to find out in the next week that they haven’t already in the last three months? They’re tinkering; they have twenty different indicators on the chart, and react out of fear. Fear consumes and controls their entire trade. Have you ever put on a short trade and all you can do is watch that trade?

The market goes down, then starts going up a little and you’re praying, hoping, and wishing for the market to go down. In your hyper-focus, you don’t see the excellent long trade and you miss out on the long trade that could have covered that loss from the short trade. That’s because you were hyper-focused on only one thing and not seeing what’s going on around you.

Everyone has had a turn being there. If you haven’t, then you just haven’t traded long enough.

They know they need to learn more, but they just need that one system that always works. If anyone could answer that question for them, then the trader asking should run away from the guru who thinks they have the answer. It’s just not possible. They’re focusing on winning because they’re too afraid to lose. That’s why they just hop from system, to system, to system.

They think that a new system is just going to be so much better for them. What they really need to know is that it’s about money management, and probabilities and putting the two together. The sheep mentality will blame the system for their losses.

Sometimes they want to quit, then after having a mentor review all their trades, they see there are many errors they made as well as better trades they could have taken.

If you don’t believe you can make money at it, then it won’t happen. Optimism isn't going to get you there, but optimism is required, and it’s required to have a healthy dose of it. Don’t look at trading as winning or losing. Hide your profit and loss while you are in a trade. Just don’t risk too much. If you’re worried, then you’re risking too much.

Think about it as inventory moving: Inventory in and inventory out. At the end of the week, you want more shipped in than shipped out. For example, 10 boxes in, then 20 boxes out; then 40 in and then 20 in, then 30 out and 10 in.

If you’re thinking about it as winning and losing and trying to be right, it’s not going to work because you can’t always be right. So, you’re going to end up being afraid.
Once they lose, the sheep go to tinkering and adding all sorts of moving averages, stochastics and on and on. Or, they think they have to know everything before they try anything because otherwise, they’re setting themselves up for losing. They come from a place of fear. They’ll watch 300 hours of video before they start trading.

Seriously, how much are they going to remember before they start hitting some live buttons? Get down the basics, know how the contract works, how to set up your charts, know the system and the rules, then start demo-ing. Once your demo results are consistent enough for you, then lightly scale in. There are no guarantees to trading but one thing is for certain, adding five more indicators isn’t the solution and it’s not going to help.
Sheep have complex screens that make no sense to anyone, but perfect sense to them, yet they still won’t place a live trade. They will focus on just one day or one week. If they are trading live and they lose on a day, Boom!

They’re back in demo and they’ll find another system. Let’s say a system has 80% historical success. What they won’t realize is that it’s 80% over 100 trades, not 80% over 1 trade. They translate that 80% into winning. It’s 80%. The probability of winning is 80%, but they have a 50/50 chance of their next trade landing in the 20% losing bucket or the 80% winning bucket.

So, when they have a losing day and they have some of those 20 per centers, they think the system’s broken. They just haven’t actually let the system play out. That’s why it’s important to practice in demo. Don’t let it play out live to see it work; get to know it in demo first. Understand the market does change. That’s why you need more than one system. Systems for different markets including flat, choppy, trending, and reversing markets.
The massive focus is on the next 12 minutes for a sheep, because they’re so afraid where they need to be at the end of the day, at the end of the week, or at the end of the month. They’re not thinking about the next 12 months. Sheep will get down the ABCs. They are those that study a system, get it down and then repeat over and over and over again.

That’s great, though you also have to consider the reality of what’s happening during that day. To be truly successful, a trader needs to be able to read the chart and see what’s going on. For example, the market already made a one deviation move high to low, and now its sitting at a .7 deviation level. There’s an excellent chance the market will reverse, so it’s probably a good time to take profits, instead of waiting until when the system tells them to exit.

In which case, if they followed the exact rules, not noticing what was going on in the market, they would have given a lot of their profit back. The Trademark of the sheep is they’re looking for and wanting the ABCs. They’re not looking at any of the 123s or what’s going on in the market.
They need to consider when news is coming out. Is the market at the expected move on the hour? Is volume steady, exceeding or running out? The ABCs aren't going to give you that. This isn't to be confused with gut.

If you are seeing something on the chart and it’s realistically happening, then other traders are able to see the same thing and know what it means. If you find yourself staying hard and fast to the rules, determined to be disciplined, following the exact rules, then you are a sheep. That is good to a point, but you also need to be real. The system gives you a structure for entering, setting a stop loss and trailing. You still have to learn to interpret the market. Volume is low. That isn't your gut; everybody can see the same thing.

The market is at a deviation level; everybody can see the same thing. It’s not just you seeing it. That’s not just gut. That’s style and actually looking at the market and letting the chart tell you what’s happening.

A classic sheep move is getting into a trade and seeing a little profit. Then they close it out and take profit. A trade that would have made six points, only made them one or two points profit. The sheep’s stops are five points and they can’t figure out why their account’s not going up. They want to have a good risk reward ratio, but they’re so afraid of losing, they mess it up by taking profits too soon. They’re operating from that sheep mentality.
Another bad trading habit is watching the market and a system, where they watch several entry points that work and win. They keep watching and the next one works, then the next, and then they finally decide its working so well, they decide to get in.

Well, then the one they get in loses. They always seem to get in at the end of the cycle. They think the market’s out to get them when no, actually, they’re not out to get the market. They miss out when all the volume is in the market and the market is moving. They sit back and wait. We have all been there.

If you’re staying in demo forever, eventually, you've got to get out of it. You have to know about execution, follow the system, manage your stops, know when to take profits and you have to treat demo real. Don’t trade 100 contracts unless you are going to trade 100 contracts when you go live. Often times, traders do really well in demo, but when they go live, they lose.

If you change what you’re doing in demo when you go live, it’s not going to work. If what you did was working in demo, but it doesn't work in live, that is because you went sheepish; hence, you are a sheep. You need to realize your tendencies quickly so you can correct them and get back on the right track. Be sure to read the next article in this five part series to find out all about the pig personality and their tendencies.

To find out more about trading psychology, go to www.apexinvesting.com. Apex Investing Institute offers free education, and free access to the Nadex Binary and Spread Scanner Analyzers. Member traders are invited to trade in the rooms, take advantage of trade signal services, have key indicators and access the Apex Forum. The forum content is updated daily and includes over 7000 members. In a supportive learning community of seasoned as well as up and coming traders, traders of all levels learn how to trade Nadex binaries and spreads in depth, as well as futures, Forex, stock and options, and gain an edge for successful trading overall.