Editor's Note: Back in 2015, Tom shared this three-question quiz to help readers identify their trading type. With that insight, you can tailor your approach to match your financial goals and risk tolerance with the strategies best suited for both. With a new investing year ahead, this could be critical to your success in the markets. Here's Tom...
All over social media there are numerous quizzes and surveys that ask you to go through it to find out what your spirit animal is, what your ideal man/woman is, what your favorite pet is, which superhero you are...
But here's one that's much more interesting and useful!
When it comes to trading, determining what type of trader you are will help dictate what types of trading strategies you use and how often you use them.
The good news is, it's pretty easy to figure out what kind of trader you are. In fact, it's almost as easy as taking a quiz on social media... except it can be a lot more lucrative too.
Today, I'm going to tell you how to determine what kind of trader you are and why it's absolutely crucial to your success in the markets...
Start with Three Simple Questions
If you are a beginner, you may think you don't know enough about trading to determine what type of trader you are. But not to worry - there are people who have been trading for years who, if you held their feet to the fire, would be hard-pressed to give a definitive answer.
Of course, your type may very well evolve over time as you trade and discover new strategies, and you may find yourself morphing in and out of trader types until you figure out which type suits you best.
So how do you know what kind of trader you are? All you have to do is answer three simple questions.
Are You a Discretionary Trader or a Rules-Based Trader?
Rules-based traders adhere to a set of rules about how they will conduct each trade. How and when to enter, when to take profits, and how and when to exit are all predetermined by their rules-based approach. Now, these systems do not account for ever-changing market conditions, but they do allow traders to remove themselves - and their emotions - from the decision-making process. If the criteria of the rules-based approach are met, a trade is executed no matter what.
I showed my readers the incredible opportunity to score 69 triple-digit winning moves in 2017. Now I've pinpointed five brand-new opportunities that I expect to return a combined 946.14%. Even better, these all start on Jan. 2 - the very first trading day of the year. Here's what you need to know...
Discretionary traders do not throw rules out the window entirely - in fact, many of them have predetermined entry and exit strategies, but those strategies may be contingent upon subjective criteria. Discretionary traders may be using decades-old chart patterns to enter and exit their trades, but how they interpret those stock charts is completely subjective. Discretionary traders allow themselves a certain amount of discretion - hence the term - when making trades, rather than leaving every decision up to a rules-based approach.
That will help you determine what strategy or strategies you will focus on and the amount of time you will need to spend on finding and managing these trades, so you will know ahead of time how long you can expect these trades to take.
Are You a Directional or Non-Directional Trader?
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.