Knowing thyself, how you feel, and how you act based on your thoughts and emotions is a critical component of being a good trader.
In my previous post, we examined the 4 Pillars of a Good Trader. I illustrated the key points that were crucial in either making, or breaking a trader’s success in the markets.
One of those points was Psychology and how it was critical that you understood yourself above all. Finding yourself, and understanding how you feel, think, and act when trading is truly a journey of self-discovery.
There is no coach out there who can tell you about yourself with such depth because only you experience your own thoughts and emotions. Instead, what we as coaches do, is help you to observe your behaviour and actions, and then we try our very best to categorise you into the most ideal trading style that suits your personality. In short, it is still a journey of self-discovery, but one that can be made easier with a coach who guides you, since they can observe and act as an external voice.
At MatrixChart Systems, there are 3 types of traders that we have defined. This list is not exhaustive by any means, and there are certainly other types of traders that you could categorise. But broadly, what we have below is from the model developed by our senior partner and co-founder, gleaned from his 28 years of market experience, and 10 years of coaching.
1) The Cheetah
Number 1 is the Cheetah. Why the Cheetah? The Cheetah is the fastest animal on land, and it comes down to how the Cheetah hunts. The Cheetah spots its prey, and slowly stalks it, planning well in advance its moves, so that with explosive reaction timing and rapidly quick sprints, the Cheetah can hunt down what is usually another fast running prey such as the Gazelle.
In trading terms, the Cheetah trading personality suits anyone who can excel at fast, rapid, intense, and high-stress situations, and still come out a winner. This type of personality is better suited at scalp trading which requires you to be fast, and have good reaction timing. When a trade comes, you’ve got to be able to immediately take action, and not second guess yourself. Once in the trade, you’ve also got to handle the emotions of seeing a low-timeframe chart such as the 5-Minute (M5) chart which forms a new price candlestick every 5 minutes.
So imagine watching prices move rapidly up and down, and seeing new candles every 5 minutes. You could be making money one moment, then losing the next, and it could be anywhere from 5 minutes to 30 minutes or more, before the overall trade does go in your favour (or maybe it doesn’t). If you can keep calm in these type of trades, think clearly, make the best decisions, and most of all, stomach the emotions that come with seeing prices move in mere minutes, then you have more of a Cheetah trading persona. To be fair, the vast majority of traders that have passed through us do not identify with the Cheetah persona, given that it is indeed one of the toughest styles to learn, and then master.
2) The Eagle
Next is the eagle. So what are the special traits about the Eagle that we can identify as good for trading? Again, the way it hunts. An Eagle doesn’t burst onto the plains and give chase at top speed like the Cheetah does. Instead, the Eagle flies high in the sky, observing and watching everything that goes on, and critically, waiting patiently for the right prey. When the Eagle spots the right prey, it swoops down, gliding effortlessly with confidence, and snatches its prey with its talons.
Relating this to trading terms, the Eagle personality suits anyone who prefers to have a more calm, lower stressed approach to trading. You can take the time to analyse the markets, plan the trade and the risk management accordingly, then just wait patiently for your trade strategy / setup to appear. When your trade setup does appear, you swoop in with confidence, and take the trade.
The Eagle persona is more calm, and precise, constantly watching from above, before swooping down to snatch the best trades possible. If there are no trades to be taken, they stay out of the market and continue flying high, watching, waiting, biding its time until the right trade does appear.
This trading persona is best suited for Swing trading, where positions can last from days to weeks, and maybe longer if the trend is strong and the trader is willing to trail it. Being swing trading, the chart timeframes that you would look at range from 4-Hourly (H4), to Weekly (W1). Swing traders may even go as high as the Monthly (1M) chart if the trend reversal seems significant enough.
No surprise, it is the Eagle persona which the majority of traders identify themselves with. Whether it is Forex or Stocks, swing trading has, and continues to be the most preferred method of engaging the market. You have ample time to analyse the markets, plan the trade + the risk, and then set alerts for those key price levels you are looking for. Some traders may even go straight to setting pending orders if they feel the chart is showing a really solid trade setup approaching.
The Eagle persona is the best one to master, as we feel it has the best blend in terms of action and patience, meaning you do not need to wait too long before a trade comes along, nor is it too fast and chaotic that you might just panic and run away. So if you’re feeling a little lost in terms of trading personality, or you are new to the markets, learning to be an Eagle is your best bet.
3) The Tortoise
Finally, we have the Tortoise. So you might be asking at this point, how and what exactly do we have to learn from a Tortoise? I can definitely tell you it’s not about hunting, because Tortoises don’t hunt, they’re not a predator. But, there are 3 very important traits about a Tortoise that are indeed vital for traders, and even more so for investors; Patience, Prudence, and Longevity.
i) Patience (Extreme)
A Tortoise is naturally slow, but that does not make it a disadvantage, as slow and steady is what wins the race. Exercising extreme patience is difficult to do, but when mastered, can be hugely rewarding in the markets.
Waiting patiently for the best possible entry price when a stock is massively undervalued takes self-control, and then, after entering the trade/investment, you would need to have that same patience to hold for as long as possible to maximize the return and make big money.
In some cases, if the company invested into is one of those major cash cows that are stalwarts in their industry and therefore a “dividend aristocrat” (e.g. P&G, Unilever), then obviously you would never sell. After all, if you were patient and savvy enough to pick up those stocks at rock bottom prices, why exit? Just hold, earn the dividend, and compound.
A Tortoise is not a hunter, but it still needs to exercise prudence in not venturing off the beaten path, or trying anything too risky. This is a good trait for any investor to have, because it means you would never park your money in anything that isn’t tried and tested. So IPO’s are a big No-No. You would only look for companies with years of stable, solid earnings, and with a healthy balance sheet to go with it. After which you consider growth prospects, future developments, R&D, and positioning. By being prudent, you are shielding yourself from potential calamities and ensuring you can hold out and survive, whatever the market conditions may be, because you’ve picked rock solid companies. You’ve essentially built a protective shell around your portfolio, just like a tortoise’s shell.
Once you have your list of such companies, you develop an investment plan to enter at good entry prices based on criteria such as technical analysis from charts, book value, and price-to-earnings (PE) ratio. You then stick to your investment plan to steadily acquire more shares of these companies, slowly but steadily. You do not always need to wait for a market crash to enter, as you can still use Dollar-Cost Averaging (DCA) to your advantage when growing your portfolio in normal market conditions.
Now imagine growing your portfolio over years, then decades. Just like a tortoise, with a protective shell, you are climbing the mountain slowly, steadily, and in a safe, well-shielded manner.
Through their patience, and prudence, Tortoises are amongst the longest living animals in the world. Tortoises can live from anywhere between 80 to 150 years, with the oldest Tortoise reportedly living up to what was estimated to be 255 years at its time of death.
As it is with markets, you want to be able to stay in the game for as long as possible. For some, maybe even leave behind a legacy (and inheritance) for future generations. With extreme patience and prudence, it is almost a given that you can last very long in the markets, catching opportunities, growing your portfolio, and of course, shielding it from calamity. If you picked companies patiently, and with prudence, there is also a very high chance those companies will remain gems in your portfolio. And given the time scale, patience, and strict prudence that comes with a Tortoise persona, it is likely your portfolio consists only of gems and nothing else.
Naturally, the Tortoise persona is best suited for investors as opposed to traders. The tortoise persona is more common than you might think. From experience, we do have a significant number of clients and students that wish to continue working in their full-time job because the salary was hugely generous. However, they wished to invest a highly significant amount of that salary into the markets to grow their capital while earning steady recurring income from those investments. And so, slowly but steadily, the Tortoise persona continues acquiring shares of the best performing stocks, but at price levels they know are reasonable. Just imagine the kind of portfolios and returns they will reap decades into the future.
Of course, an investment with both Capital gains + Dividend yields is the best type of investment, and this is what we at MatrixChart Systems strongly advocate as well.
What We Can Learn…….
The takeaway here, is that it is not easy for anyone to figure out their most ideal trading/investment style. This has been, and always will be, a journey of self-discovery for the individual, and it takes time. But it is a journey made easier with a coach who can observe from the outset and be an external voice. Once you find your preferred style however, you should stick to it, and continue to find ways to improve so you can be a master of that persona. Once you have mastered one style, you can consider venturing out to try the others, but continue to do more of what works, and less of what doesn’t.
Many people make the mistake of trying to find the best trading strategy. But in reality, it’s about knowing yourself, so you can find the best strategy that suits you…..