This is one of the most important elements that I feel most aspiring traders and trading educators miss.
In this post, I'll show you why knowing your Trading Heroes (TH) Trader Personality Profile is so important to your success and how you can figure out your profile. Once you have defined your profile, I'll also show you where to go from there.
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Why Your TH Trader Personality Profile (THTPP) is Vital to Your Success
Before we get started, you need to understand why figuring out your THTPP is important, primarily when you are still learning to trade consistently.
The power of knowing your THTPP lies its ability to focus your attention on learning strategies that have the highest probability of working out for you.
Learning to trade is hard enough.
Don't make it harder by trying to learn strategies that will never work for your personality or lifestyle.
Once you have mastered at least one trading strategy, then your THTPP becomes less useful because you already understand the process and mindset of mastering a strategy and can apply it to strategies that you might necessarily be a perfect fit for.
Alright, here we go…
The TH Trader Personality Profile Breakdown
The THTPP is broken down into four core areas, with three subcategories in each:
- Trading Timeframe
- Position (P)
- Swing (S)
- Day (D)
- Chart Type
- Countertrend (C)
- Trend (T)
- Strategy Type
- Technical (T)
- Fundamental (F)
- Balanced (B)
- Risk Level
- High (H)
- Medium (M)
- Low (L)
Let's take a closer look at each of these areas…
The first step is to understand what timeframe works for you.
I prefer swing trading.
…but that's just me.
A big reason that most traders fail is that they don't match their trading timeframe to their personality and lifestyle.
They take a course and the instructor says that swing trading is the best, so they follow that advice until they get a margin call.
So don't do that.
Think for yourself.
You can make money on any timeframe.
Yes, longer timeframes will give you fewer trades, but you can compensate by trading more pairs or adding more strategies to your arsenal.
If you aren't familiar with the timeframes, here's an explanation of each one.
- Position trading: You stay in trades anywhere from a few weeks to a few years.
- Swing trading: You stay in trades anywhere from a couple of days to a few weeks.
- Day trading: You stay in trades anywhere from a few seconds to a day.
I think you are starting to see why defining your timeframe is important.
If you are a busy parent, then day trading probably won't work for you. If open trades make you nervous, then day trading might be for you because you will close out your trades at the end of every day.
Also consider what you want your life to look like as a successful trader.
If you really want to hang out on the beach and travel the world, then you should probably work on swing or position trading strategies. However, if you like the excitement of facing a new trading day with a clean slate and trading for a few hours, then day trading might be for you.
Of course, there are exceptions. But that's the general rule of thumb.
So stop thinking about trading systems in terms of how much money the educator makes in their trading account and start thinking in terms of how well the timeframe suits you.
Next, you should consider what type of trading strategy makes sense to you. Do you primarily rely on fundamental or technical analysis to make trading decisions?
Most people use a little bit of both, but pick the one that you will primarily use.
In very, very rare cases, some traders will use an equal balance of both technical and fundamental analysis. If that is you, then select the balanced option.
The next thing you should consider is type of chart pattern you are looking for to enter trades. Even fundamental traders will usually favor one chart type over another.
Here's a breakdown of the classifications:
- Countertrend: You are looking for a point on the chart where price changes direction.
- Trend: You are looking to trade with the trend.
Yes, there are strategies that can be classified in more than one category. But do your best to define these terms in a way that makes sense to you and classify yourself accordingly.
Here's an example of each of the categories:
Note: I also used to categorize chart types as Breakout, but I don't do that any more. I feel that a breakout trade is essentially trend our countertrend, so I eliminated that category to streamline things as much as possible.
This one is pretty straightforward, but it is also relative.
To make things simple, here's how I define the levels:
- Low: Risking less than 1% one each trade
- Medium: Risking between 1% and 2%
- High: Risking more than 2%
From what I've seen, most traders should be trading with low to medium risk.
…at least in the beginning.
But if your testing shows that you can trade a high risk system and you can handle the drawdowns, then forward test it in a small live account.
Do what works for you.
If you have a lot of backtesting data, remember that you can plug it into the calculator to figure out how much you should be risking per trade, to avoid your “freakout' drawdown.
To learn more about how to figure out your optimal risk, read this post.
Putting it All Together
Alright, now simply take the first letter of each classification and put them together to form your TH Trader Personality Profile.
For example, I'm primarily a:
Again, this should not make you feel like this is the only way that you should trade.
But it is the best starting point to help you focus your attention on what has the best possible chance of working for you.
Where to Go From Here
Give your THTPP mindful consideration and don't just fill in what you want to be. Sometimes, what we want to become is different from what actually works best for us.
For example, John thinks that that day trading is sexy and exciting, so he wants to be a day trader. But in reality, he has a demanding job and two young kids, so swing trading is probably a better fit for his lifestyle.
If you aren't sure about what works best for you, do this…
Open a demo account and take trades from all of the categories, at the same time.
For example, if you don't know what chart type works best for you, then pick two different trading strategies. One trending and one countertrend.
It doesn't matter if the strategies are profitable or not. You are trading in a demo account, so you aren't risking real money anyway.
The important thing is to understand what feels best to you.
Do this for about a month. At the end of the month, note which one you like best or makes the most sense to you.
Go with that.
It's not important to be perfect and pick exactly the right one.
The more important thing is to make a decision on where you will focus your time and energy.
You can make a change later, if it's obvious that you should be doing something else. But you will reach your goals faster by failing quickly, rather than trying to be perfect from the start.
Once you have your profile set, then go out and find trading strategies that will fit this mold. It might surprise you how much easier it is to find courses and backtest, once you narrow down your focus to what fits into your THTPP.
You can also alter existing trading strategies to fit your profile. For example, if a trader teaches a strategy on the daily chart, but you are a day trader, then test it on the 5 minute chart.
Never risk real money until you test it!
Alright, that's how you figure out and use your TH Trader Personality Profile.
Now get to work!