What Kind Of Trader Are You?

Posted by on Feb 3, 2017 in Blog

What kind of trader are you?

One simple question, what kind of trader are you? Most new traders don’t understand this question. It is like asking a football player “what position do you play?” A problem many new traders face is defining what kind of trader they are. What this means is are you a scalper, a short term trader, a medium term traders, a trend follower, a long term trader, etc.

Each successful trader, just like each professional sports star, leverages his abilities. You wouldn’t ask a place kicker to be a pass rusher or a quarterback to play punt returner would you? You could but they wouldn’t be very effective in their new role initially, if ever.

Can Usain Bolt win a marathon? No because he has developed his fast twitch muscles to benefit him over extremely short distance races.

Will you as a trader know what kind of trader you are right away? Maybe, but it is hard to say. Each trader is different. You have to adapt to what you do best.

A short term trader mentality is completely different than a trend follower. A short term trader is more concerned what is happening in the next few ticks while a trend follower is thinking 2 or 3 months out in the future.

Order flow is best utilized by short term traders and scalpers. It is not of much benefit to trend followers or long term traders. However that doesn’t mean it has absolutely no benefit to long term traders, but the opportunities are fewer, much fewer in fact.

If you are a short term trader, by my definition someone who looks at time periods of less than 15 minutes, ideally less than 10 minutes, then order flow will benefit you incredibly.

Here is a great example of how order flow will help a short term trader find and confirm a high.

Bond futures high made and then sells off

Its in the bond futures, the market made a high at 8:11am and there was a divergence in the order flow. A new high with a negative delta. The next bar you see a ratio of 31.33 in blue which indicates price rejection and what happens the market sells off from around 151-00 to 150-25, but then just went sideways around the 150-28 level. It not a full handle move. It didn’t go from 151-00 to 150-00. But you can only get what the market is giving you and right now it is only giving you about 4 ticks. So take it and wait for the next opportunity.

Will a long term trader be happy with a 4 tick winner, probably not, but will a short term trader be happy with a 4 tick winner. Yes he should be.
One of the problems many losing traders face is they don’t know what kind of trader they are. Most are short term traders with a long term trader’s mentality. They want to get the 20 point moves in the ES, the $2 move in CL or the full point move in the bonds as a result end up losing because they are not trading with the right mentality.

If you are trading a 1 minute chart to hold a position longer than an hour is a stretch. Sure there will be times when it a trending day and you can maximize the position for a major profit. But the reality is monster trend days are rare and a position taken on a 1 minute chart should be traded as such, you should be in and out with a decent profit in the shortest amount of time possibly.

One thing to remember is the longer you are in a trade the more chance it can move against you at some point. I see traders all the time take a position on a 1 minute chart and it goes in their favour and then after about 20 minutes everything changes in the supply and demand and then their winning trade turns into a losing trade and they are upset. I ask them what were they thinking? The trade would go to infinity in their favor? They sat on a profit and did nothing then when it started turning against them, did nothing again. At worst they should have broken even.

Here is a great example of the what I mean. This is the Delta Surge indicator which you can download for free here on my website. It is designed for short term trading and there was a trader who downloaded watched it for a while then sent me an email saying it is lousy.

Crude Oil Futures chart

He explained to me he uses 4 range charts in CL. Ok, so I know right away he is an extremely short term trader. At 8:01am there is a sell signal when the market is trading around 53.58 – 53.60. The market then proceeds to sell off to 53.40. Now I am not saying you would be getting out at 53.40, no of course not, but when the market is hanging around 53.48 for about 15 minutes that is a sign that the move is over and can go either way and you should be thinking of getting out. Not waiting for 45 minutes when it is trading above where you got short at. If you are a short term trader trading a short term chart, take your profits in the short term (unless of course the market just runs and jumps in your favor then you can hold it a bit longer). Recognize that the move is over and get out and wait for the next trade.

Happy trading.