Sheep, Pigs, Cheetahs and Lions: The Four Personalities of Traders (Part 3 of 5)

You don’t want to trade differently because the last trade lost or because the last trade won. The last trade has nothing to do with the current trade. Your risk management shouldn’t change because of a trade winning or losing or you have a nice winning streak for a while. Do you ever just throw a trade on because it seems like a good idea? For example, you saw something on TV or in a post, or you’re bored, so you make a trade, and then you win, so you do it again and again. But you’re putting way too much risk in. Then, Boom! It blows up and wipes out 30% of your account. That’s essentially getting rewarded for the bad behavior. But you won, so you go back and do it again. Do you think the pig goes back in though with only one contract and only trades with one contract? No, of course not. The pig went in with more. If you do that, that’s the pig mentality.

They have horrible risk and reward management. For example, they’ll be up $25 on a trade and there is only $5 left of potential profit in the trade. It’s only a couple ticks away, but they want that $5 bucks. So, they don’t close yet. Its only two minutes away and going into the dark zone. You can trade in the dark zone the last two minutes of binaries, but there’s little liquidity in the dark zone because the market makers pull their liquidity out. Maybe they’re trying to get that fill because they had their take profit order in for $95 and it is trading at $90, so they’re just going to hold it. Or maybe, they want all $5. They’re going to hold; they just have to have the last $5 profit. They would rather risk $70 just so they can make that last $5. Exit and make $25 now! That’s a bad risk reward scenario. It’s better to close out the trade, take the $25 profit and move on to the next trade. By staying in, you’re tying up your capital.

When you close out a trade, you need to ask yourself if you were trading like a pig, a sheep or the other two personalities that’ll be discussed in the next articles. You have to be able to take profits. If you aren’t exiting at a stop loss and the market goes against your trade, you’re watching it, thinking it’s really close, you might be thinking like a pig. Now you start doing your style analysis to justify staying in the trade. You rationalize it, thinking the last time you got out it came right back in your favor and your trade could have been profitable. Then you stay in and it continues to go against you and you really lose. You lose more than just a reasonable stop loss of $20-$25. You lose $70 because you didn’t get out when you should have. Then you start to blame it on the system again.

Pigs will jump in too early or too late. They’ll jump the gun. For example, they may get excited, see that the volume is up and then jump in a short, before the bar has even closed down indicating the entry signal. It may not even be a short trade. Then they lose. They may not have lost if they had just waited for a complete entry signal. Or, they’ll realize they just missed an entry. It was ten minutes ago, but they’re thinking that’s a good trade and jump in too late trying to chase the trade. They hop in on it and their trade goes up $10. If they had gotten in on the original entry when they were supposed to, it would be up $20. They stay in past when they should be getting out, trying to get the extra $10. Then it goes against them and they end up losing on the trade. If you find yourself taking trades before or after the trade entry signal, then that’s a pig; you are having that pig mentality. Now, no one really wants to call themselves a pig. But remember humility. An honest estimation of oneself, humility is an essential characteristic of a successful trader. The more self-analysis you do, the more comfortable you get at looking at yourself, the better job evaluating yourself, the better off you’re going to be, and your trading will be more profitable.

The next portion of the pig’s personality is that they don’t want to learn and grow. This is a big one. They’ll say, “I have a bachelor’s degree,” or “I have a master’s degree.” It doesn’t matter. It’s like someone coming in saying that they’re going to fly a plane, because they have three PHDs, they’ve run a company, therefore, they should be able to fly a plane, even though they’ve never sat in a cockpit. Trading is the fastest way to learn a profession that you can learn. There are few, if any, professions that can pay as well, that you can learn so fast. It’s not something you can just get the feel of; you have to read the manual. You’ve got to get in the simulator. You’ve got to spend some time and take the courses. If you aren’t willing to educate yourself in trading, then you are donating your money to the trader on the other side of the trade. If you think about it, the trader on the other side has taken the time to learn charts, volume and how instruments work. They’re on the other side of your trade. Are you equipping yourself or are you just saying, ‘I’m prideful. I should just be able to do this”?

A pig would rather follow a guru verses becoming the guru. They would rather get signals and follow the signals. You need to know how to trade: You need to become the guru. Are you going to be comfortable quitting your job, trading for a living, if you’re following someone else’s signals? What if they just stop someday? You don’t have to have an entourage of people following you, however, can you teach it to at least one person? Or, do you not understand it enough that you always want to be told exactly what to buy and sell, so you can just do it? That’s not a wise investor or trader and you won’t last long.

They may seldom ask the question, “What did I do wrong?” Pigs will say, “See, that trade didn’t work. The system doesn’t work.” They never stop to ask, “What did I potentially do wrong?” If they did, they would have realized they didn’t even follow the correct entry rules or something else. The first place you should look is at yourself, because you can’t fix a system if there is something wrong with you. You will never have any true accuracy on the system, or your trading results. Always ask if you did anything wrong, so you don’t repeat it. Also ask if you did anything right, so you can continue doing it. Pigs have a bad habit of remembering the winners and forgetting the losers. They’ll look at their record and they’ve been winning for the last 3 months straight. But they conveniently forgot they’ve had to deposit more funds to their account every month. On the fourth week of every month, they always seem to blow it out. They’ll tell you they were winning, it was working, but they don’t have good risk management, so they’re blowing it out. In the fourth part of this five part series you will learn about the cheetah mentality.

If you want to learn more about the four personalities of a trader, go to www.apexinvesting.com, a service provided by Darrell Martin. 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.