Crypto trading styles are personal, what’s yours?
What kind of trader are you?
Are you the type that likes to get in for a taste with a trade and play around?
Or are you stepping in to make a statement about what you believe the future will be?
Do you like to dance around in the market, or grab offers and pound bids all day? Maybe you need to do deep analysis and research. Are you a speculator, market maker or investor?
Everyone who becomes successful in the trading arena has a style that fits their personality. The challenge is to find out what it is quickly so you can get focused on developing your ideal trading process and get the results you want.
Why is this so important? Please read on…
Customize your trading approach
It’s a well-known cliche that you need to avoid your emotions when trading, and it’s not entirely true. You want to avoid being negatively influenced by emotional reactions, but you want to harness your emotional responses and use them as valuable trading information.
When you trade using a style that doesn’t suit your personality, attributes and strongest skills, you create internal conflict, emotional turmoil, and reduce your ability to focus on the task of making money.
There is a reason why customization is so common today, people are different.
Maybe you run best on bacon and eggs for breakfast while your buddy says he’s on fire when he fasts. Someone else feels amazing when they guzzle coffee with a wad of butter in it.
You might be a morning person, someone else is a nighthawk. Some people are most productive in the middle of the day.
You like to exercise in the afternoon and someone else first thing in the morning.
When you find what works for you in various aspects of life, you excel. Getting there however takes some time, experience and experimentation. In a trading environment, it’s the same process, but it’s also more critical because whatever kind of trader you are, you are about to be introduced to your deepest self.
Your weaknesses will be exposed
Until you find your trading style and set up a trading risk management process, you will be receiving the most ruthless personal counselling you could ever imagine.
The market will be a curiosity at first, but the minute you have real money at stake, the market will expose your deepest beliefs about money. Your emotional weaknesses will be brought to the surface. As the size of your positions and percentage of total net worth grows, so too will the emotions that accompany them.
If you fear being broke, every move lower, even temporary will give you a feeling of dread and anxiety. Losses will be perceived as catastrophic rather than valuable tuition to be used to profit in the future. That sinking feeling, the spiralling lower with your hodlings is what is called being in the mixer. The mixer is when you feel like you are a slave to the movements in your portfolio.
These feelings will interfere with your ability to make the right decisions like when and how to sell, or whether you should. It will interfere with recognizing the time to buy during the downdraft. You might even be frozen into a situation where you can’t make any decision.
Gains can amplify this as well, and not always in a positive way. First-time gainers become confident and then overconfident. Overconfident trading becomes sloppy, the positions expand rapidly as thinking and risk management are forgotten, leading to massive blowups. Overconfidence includes not having a plan to sell, or not updating or following the plan you have.
They don’t say: sell when you can, not when you have to, for nothing.
If you “need” to make money, or “make back” the losses, this thinking will undermine your ability to think clearly. Without a style and a plan that suits you, you will become a slave to the very thing you want to avoid: negative emotional influence.
Style isn’t just for your appearance
Your trading style is where you can benefit from your unique personal attributes and strengths. You don’t force a morning person to be a nighthawk, and you might not be well suited for day trading if you are a deep thinker and thrive on research to make decisions.
There is no one way or right or wrong way to trade. Within the bounds of the rules (if they exist) trading is either profitable or unprofitable.
The cryptocurrency market has an increasing number of niches for different trading personalities. So here are a few things to think about as you work your way towards yours.
Now, do you prefer to be more active versus passive?
If you prefer the active approach, you gravitate to many transactions in seconds, minutes throughout the day. You have the reflexes of a gamer, intense focus and are willing to push yourself to operate at a high level.
How about less frequent, more hands-off passive style trading. You are probably more of a thinker that likes to research, plan and execute with longer time frames for your thesis to play out.
If you prefer to trade exclusively based on your own judgement of market activity, you are a discretionary trader. You have trading rules or principles, but they are flexible depending on existing market conditions and your interpretation.
If you are a non-discretionary trader or rules-based trader, you favour a defined system or more “black box” type trading approach. You set up a set of rules and follow them until that system fails to produce, then you make adjustments. Here you don’t rely on your wits and judgement, you rely on the rules you’ve identified and tested to remove the influence of judgement and emotion from your trading approach.
You may also focus your activities based on duration. Day traders are focused on activity throughout the day often going home flat. Swing traders initiate positions intending to hold them over several days or weeks as they wait for confirmation of a trading thesis. Longer term holding is more of an investment approach.
So you can be an active or passive, discretionary or rules-based, and short term, swing or long term. Or a combination.
Action or thinking?
Some people like action, they are gamers at heart. A day immersed in the markets is their jam. Buy on the bid, and join the offer all day long while watching the various short term indicators like ten-minute charts, the ticker tape or their own intuition.
This is a high-intensity approach to trading requiring ongoing training of your intuition and market understanding.
You might be an unofficial market maker whereby you are always working a bid and offer spread, buying and selling back and forth with no real commitment to the direction of the market always working the middle. Here your work is making sure you are alert, healthy and able to focus during your trading time.
On the other hand, you might be a deep analysis type. Each decision needs to be carefully researched, planned out and executed. Every trading decision is deliberate, based on some evidence and long deliberation. In other assets, one might be a trader that focuses on technical analysis or fundamental analysis.
In crypto, fundamental analysis might be an understanding of the entire crypto ecosystem and the relationship of various coins and assets to one another.
For the technician, the charts are the guide to decisions whether using short 10 minute time frames or longer weekly, monthly or yearly. Or a bunch of indicators to help you make decisions.
Chart your own trading path
You can be any combination of these trading styles as long as they work for you.
You trade actively using short term chart indicators with a loose system approach? Good.
Prefer a more passive analytical style where trades last weeks using a set of indicators you find successful? Excellent.
Want to get in there and mix it up all day in the middle using an active purely discretionary approach like a market maker? Right on!
When you discover the style that’s right for you and combine it with a defined approach to managing your trading risk, you are moving towards a net positive trading experience.
When you make these discoveries, that ruthless counselling session you attend every day in front of your computer will then become an advantage.
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