"The Development of a Market Master - Part 2"

In this article I will attempt to outline common stereotypes of traders, and discuss how these characteristics can adversely affect the traders' development and trading profits.

I accept that people do not fit neatly into stereotypes, and I acknowledge that we all possess all of the characteristics to some extent. If we fit a negative stereotype too closely, however, it is important that we be aware of this. This awareness allows us to take measures to overcome any weaknesses that may affect our progress, analysis, trading performance, and ultimately our trading profits.

The Perfectionist

Perfectionists are intelligent traders who are determined to learn all the things there are to learn about technical analysis and trading, prior to taking their first trade. They often have higher degrees from well-known universities - in computer science or a related field. Their charts are meticulously drawn; the attention to detail is nothing short of amazing. They analyse to the point of complete tedium.

If you meet a perfectionist after a year's separation, nothing has changed. They will tell you that they intend to trade soon, however they must complete just one more exercise/course and so on, first.

Perfectionists can truthfully boast about never having a losing trade - as extreme perfectionists have never taken a trade. They don't enjoy their trading - they suffer from it.

The solution - Perfectionists must learn that there are no certainties in trading; only probabilities. They must also become aware that 80 per cent of learning how to trade can be achieved in 20 per cent of the time, and that one can never reach 100 percent.

Perfectionists also need to learn to translate theory into practice. In technical analysis and trading, this often means simplifying what they are doing, not complicating it. Furthermore, a great deal of learning takes place while taking trades involving real dollars!

Nervous Nellies

Nervous Nellies remain in a constant and intense state of agitation. Like the perfectionist, they look for any excuse to avoid taking a trade. When in a trade, they check the price at every opportunity, and phone their broker repeatedly throughout the day.

Nervous Nellies often act like a dog that has been kicked once too often. Their favoiurite expression is "sorry, it is my fault". They see themselves on the bottom rung of the ladder to success. Chronic Nervous Nellies can exhibit symptoms of disstress - such as headaches and elevated blood pressure.

The solution - Nervous Nellies should consider if trading is really for them. If so, they may be wise to trade stocks (as opposed to futures and options), and to take longer-term trades rather than intra-day trades.

They should also banish their live data - for them, their Ticker is not good for their 'ticker'!

Guru Groupies

Guru groupies become obsessed by a particular guru. They buy the guru's course(s), attend his or her seminars, and eagerly await every communication from the guru.

Guru groupies become known to their idol by sending him or her letters laden with glowing praise, and even gifts. Their dream is to meet the guru, become his or her friend, and to learn the trading gospel according to the guru.

After a while, they realise that the guru is not going to take them into the inner sanctum. Fortunately for them, their attention is drawn to another trading guru who has an even better version of the Holy Grail.

They buy their latest guru's books and course(s), and his or her computer program(s), and they attend his or her seminars. …And so the cycle continues.

The solution - Guru Groupies need to select a proven trading system, and focus on trading their system according to its rules. They should understand that regardless of how talented a guru may be, it is they, as traders, who have to make their final trading decisions.

Some guru groupies are insecure people who cannot accept that no one individual has all of the answers. Their secret hope is that their guru will take responsibility for them.

Grail Groupies

Grail groupees are active traders who, subconsciously, are searching for the holy grail. They buy a system, trade it for a while, and as soon as they get three losing trades in a row, retire the system in favour of another which is being advertised as giving spectacular returns, negligible drawdowns and is nothing but a licence to print money.

The solution - Grail Groupies should settle on a proven system, and trade it strictly according to its rules for at least six months.

They should continue to acquire knowledge, but should not attempt to make any changes to their proven trading system until they have established a trading history of making consistent profits, and have thoroughly back-tested any changes and found that they can enhance the system significantly.

Victims

Victims are convinced that the world is out to get them. Everything is done to them, not by them. They love to complain, and never seem to exhaust their list of things to complain about. Victims are accountable for nothing. They constantly whine, and delight in blaming others.

Losing trades are "just my luck"; all fills are bad fills.

Victims are insecure traders - their insecurity often arising from years of trading losses. They are also highly inflexible. This makes trading a particularly difficult undertaking for them.

• not be so arrogant as to assume the that market could give a damn about whether they lose or not. The simple reality is that they can be just as profitable as any other trader trading the same system! They should take control of their trading (and their lives), and take full responsibility for your own actions;
• broaden their horizons - they should acknowledge their strengths and build on them.

Victims should also ask their surgeon to reverse their charisma bypass.

Wallys

Wallys strut around outside trading venues with a pager in one hand and a mobile phone in the other - talking to their broker. They are superficial people, who are not beyond self-criticism in order to attract compliments.

Wallys are driven by ego. They want to 'show off' in front of others at every opportunity.

The solution - Wallys should note that professional traders do all they can to avoid unnecessary emotional pressure. As a consequence, they should do their own analysis and take their own trades. Furthermore, they should not discuss their trades with others, as they realise that this unnecessarily increases the pressure on themselves as traders.

Because they are trading their proven system, Wallys should reward themselves for sticking to their rules. They should not be so emotionally insecure as to have to seek the approval of everyone around them.

Av-a-chats

Av-a-chats phone or send emails to at least five other people before putting on a trade. They talk trading at every opportunity and in particular, love to talk about their own trading prowess and feats.

Av-a-chats do not have confidence in their own trading ability or system, nor can they make quick decisions. This results in them seeking redundant information. Unfortunately, by the time they get sufficient agreement that a trade is worth taking, the market's run is usually all but over.

Av-a-chats should ensure that they have a proven trading system, and paper-trade the system on a 'live' market. They should paper-trade at least 30 trades. In this way they will master the system's rules, gain an indication of the profitability of the system, and will program their subconscious mind that their system will make them money, as long as they stick to the rules and take a reasonable number of trades.

Other Stereotypes

Other trader stereotypes include:

Drama Queens

Drama queens (or kings) are traders who can turn five minutes of meditation into a crisis. Watching paint dry causes them palpitations. Their life is a series of dramas, which they willingly share with everyone around them.

Shredders

Shredders are traders who eat wrestlers for morning tea. They have insatiable appetites to dominate and control everyone and everything around them. Their overpowering personality usually means that they are constantly frustrated, and are often extremely lonely people.

Argumentatives

Arguementatives are people who thrive on disagreement. They love to take the other side of a debate just for the sake of it.

In theory, argumentatives should make good traders, given that at key turning points in the market sentiment indicators reveal that the majority are wrong. Unfortunately for them, they tend to short strongly trending bull markets at every minor reversal - so by the time the final turn in the market eventuates, they have closed their trading account due to insufficient capital.

Napoleons

Napoleons are legends in their own minds. They bask in their own importance, and truly believe that they are far superior to those around them. Sadly, it is not only those around them who fail to respond to their importance - the market does not respond favourably either!

Conclusion

Market Masters constantly monitor their own actions and behaviour with respect to their trading. They then analyse this behaviour as objectively as they can, looking for solutions to problems. They understand that focusing on symptoms is fruitless - it is the solutions that lead to the improvement. They should understand that balance in their lives is important, and that it is dangerous to fit, too closely, any of the above stereotypes.

[This article is based on an article published in the Australian Technical Analysts' Association Journal, July/August 1999.]

"For more information on how you can maximize your trading profits while strictly controlling your risk, click here..."

Neil A Costa