Are you a greedy nerd or an aggressive alpha Trader?

 I previously talked about how trading strategies are not a one-size-fits all approach...

...and importance should be placed on aligning your trading style with your unique personality.

I recieved a handful of questions asking for further insight into this topic.

So who am I not to oblige;

A trading strategy isn’t something you randomly pick up;

It’s a set of tested rules and principles that make sense to you.

Randomly choosing a strategy and applying it without understanding it is why most traders suck.

Ever wondered why the same strategy makes one trader rich and another constantly lose?

Understanding your trader personality is key.

If you can align your trading plan with your personality you create the least amount of friction between your actions and your trading plan.

So how can we loosely define our own trader personality?

Which of these archetypes do you relate to?

More importantly...

It's not what do you feel, it's more what does your trading data point at...

The Aggressive Alpha

This trader is all about big moves and high stakes.

They talk about their huge wins but also likes to impress with big losses, flaunting a get-rich-or-die-trying attitude.

They flaunt their lifestyle...

Beachfront villas, fast cars, and expensive restaurants are their usual posts on social media.

The Greedy Nerd

Focused on risk and money management, this trader loves statistics and playing it safe.

They have an unhealthy obsession with backtesting, placing higher importance over past data than their current performance.

They often lock in profits early and rarely obtain big wins, but they also don't talk about their loses.

Their strategy is all about control and steady gains.

The Anxious Analyst

Constantly talking about and sharing potential trades.

This trader often misses opportunities because they’re waiting for more confirmation.

When you question why they didn't take the trade they marked up, their best answer is "it didn't feel right" or they'll enter a trade late because they "were not sure".

They question their decisions and seek validation from others, wanting their insights and opinions. 

Most traders aren’t purely one type, they'll be a hybrid.

While thinking which archetype you relate to most, also ask yourself the following questions;

Do you often miss entries you see evolving right in front of you? (Anxious)

Do you enter trades too early without waiting for confirmation or to meet your plan? (Greedy/Aggressive)

Do you execute take profits too late, giving back profits? (Greedy)

Do you close trades too early to secure profits? (Anxious/greedy)

I can hear you asking;

"How does knowing an archetype help me adjust my trading strategy to meet my personality type?"

These are the elements within your trading that you need to get clarity on and set parameters that match your personality type;

Trade-Frequency and the Choice of Timeframes

How often you find a trade depends on the timeframe you follow.

Following the 4-hour or daily timeframe may provide one signal every one or two weeks.

The 1-hour or 15-minute timeframes could generate a new entry signal every few hours or once per day.

A very greedy or aggressive trader might have problems if they can only find one trade every week or two.

They might be tempted to violate trading rules to generate more trades.

An anxious trader will miss setups frequently, and trading high timeframes would mean long periods of not trading.

This can lead to beating themselves up for missing trades.

On the other hand, trading lower timeframes can easily result in over-trading for the aggressive or greedy trader.

For the anxious trader, lower timeframes might be a good fit because they will frequently see new potential setups.

Missing a single trade does not have big impacts on the higher timeframes.

As you can see, just the question of trade frequency and the choice of the timeframe is not easy to answer.

The myth that trading the daily timeframe is easier for everyone should be abandoned immediately.

Holding Time

The holding time and the investment horizon bring problems of trade management.

Greedy and aggressive traders tend to widen profit orders because they believe every trade has big potential.

This often results in price reversing and giving back profits, even beyond their initial take profit order.

The anxious trader constantly fears a reversal and will close trades ahead of the take profit target.

This cuts winners short and lowers the expectancy of their trading strategy.

In general, the longer the holding time, the more chance for a trader to ‘mess around’ with a trade.

It is therefore important to be aware of how you manage trades and find the optimal holding time for your trader personality.

Win-rate vs Risk

Most traders lack the statistical understanding of how expectancy and probabilities work in trading.

For many traders, it is hard to trade with a strategy that has a relatively low winrate.

For some traders, it is psychologically difficult to have a strategy with a high win-rate and a low risk ratio.

To be clear, a low win-rate does not indicate a losing trading strategy.

A high win-rate does not automatically mean a trading method will make you money.

A profitable trading strategy with a high win-rate can, and usually will, have a lower risk ratio.

A profitable trading strategy with a low win-rate will normally have a higher risk ratio.

For a trader, this means finding the optimal combination of risk ratio and win-rate for their personality.

Can you deal with long losing streaks and accept that one profitable trade can make up for several losers without losing your head?

Can you accept a low ratio between the size of winning and losing trades which usually comes with a strategy that has a higher win-rate?

These are just a few questions you have to answer for yourself.

Your Risk Level per Trade

You often read about the magic number of risking 1% or 2% on any individual trade as the easy fix for all risk management problems.

But there is more to this than just choosing an arbitrary number to apply to every single trade.

First of all, your personality type will determine how you can handle a certain amount of risk per trade.

The anxious trader will usually choose a risk amount that is too small.

The greedy and aggressive trader take far too big a risk per single trade.

The win-rate and risk combination you choose have to match your risk per trade level and your personality type as well.

A trading strategy with a high win-rate will usually have a lower risk ratio.

A low risk level per trade means that it could take a fairly long time to grow a trading account because winning and losing trades have a similar size.

This often results in breaking rules to find more trades, especially for the greedy and aggressive trader.

In contrast, choosing a lower level of risk is usually the better approach for a trading strategy with a low win-rate and high risk.

A low win-rate means that your losing streaks are longer and, therefore, your drawdowns will be bigger.

If you combine this with a higher level of risk, your drawdowns can eat up a significant amount of your trading account, leading to further psychological problems.

When it comes to finding your optimal level of risk, ask yourself how you can handle large drawdowns and if you can accept slower, but steady account growth.

If your trader personality gets uncomfortable after a few losing trades in a row, a trading strategy with a low win-rate and a high risk per trade is not going to be the best fit for you.

Developing your trading strategy is more than just following your mentors every decision and action.

A trading strategy that works for you has to be tailor-made to your own trader personality and character traits.

Losing money in trading is not exclusively the fault of the trading strategy itself, but commonly made worse by a mismatch between the trader and the trading method.

To adapt your trading style for yourself, follow these points:

Determine your trader personality.

Consciously define trade parameters that could match your personality.

Evaluate the performance of each individual parameter and how you deal with them.

Make adjustments if you experience problems.

Repeat steps three and four until you find your perfect fit.

Stay disciplined, stay informed, and keep pushing forward.

Happy trading!

- Jonny