These are many types of traders but these are the two main types of trader mindsets that I will cover:
- The Glorified Insurance Agent
- The Gambler
The Glorified Insurance Agent
Traders with this mindset engage in the following:
- They make calculated diversified risks,
- They focus on small consistent gains over homeruns,
- They measure reward over risk for each trade,
- They prepare for up or down markets (if X, then Y, else Z),
- They find the style of trading that works best for them,
- They build a set of rules around this style,
- They focus on strategy over patterns,
- They focus on what they can control (themselves)
Patience, Self-Control, Risk-Management and Discipline are the three skills that will help people here.
What A Good Trader Does
To be a successful trader you have to think like the 10% of Traders who win consistently. Logical thinking is a minority skill that can be learned.
A Good “Insurance Trader”:
- Sell the rumor, buy the news,
- Work with the market manipulation not against it,
- Be skeptical,
- Won’t speculate
- Buy low, sell High according to their time-frame
- Stick to their rules
A bad trader will do the opposite.
Even a Good Trader can fall prey to a bad mindset from time to time. How often do we hear how people amassed a lot of money in trades only to one day lose it all, either because of a scam they went all in on, or for getting overly confident and taking on the gambler mindset.
Emotions Aren’t Bad, They’re Messengers
People frequently say take the emotions out of trades; but this is impossible. I suggest the following:
- Manage the emotions,
- Learn what triggers them,
- Use them to discover your relationship to money,
- What answers do you think this will solve,
- What problems will you think it will cause,
- Use it as a gauge of determining if you have too much money on the line,
- Let them guide you to building a better strategy
I frequently view Messengers as symptoms that when investigated can help you get to the root. Ask your emotions questions, so you can understand more about yourself, why they are there, and then manage and maintain them. If your stomach drops every time the stock sinks, then you need to adjust your strategy. Sometimes that means going long, and not watching your portfolio every two seconds, while still monitoring. Other times it means that you short to go long, or short to stay long and maximize your gains. The methods people use will vary. Sometimes the emotions are there to tell you that you are gambling and trying to win the lottery, and that perhaps this isn’t the right career path for you.
Trades with this mindset engage in the following:
- They treat trades like a lottery,
- They get greedy often putting all their chips on the table,
- They risk more than they can afford to lose,
- They follow an emotional based algorithim,
- They speculate on what they wish or fear the stock will be
- They try to predict future outcomes
- They are unprepared for unexpected outcomes
- They depend on patterns over strategy
They focus on what they can’t control (the external world)
Greed and Fear are the two biggest emotions that people need to watch out for here. It leads to irrationality and impulsiveness.
Trading is Not the Lottery
If you want to be successful at trade you have to stop thinking of it like a lottery. The Lottery was designed for one reason only, to exploit low-income individuals with promises of escaping poverty.
This makes Traders vulnerable to people who design systems that are meant to manipulate them. When we think about our life in terms of winning the lottery, we’re engaging in a system designed by those who are wealthy to manipulate the poor.