The Trader Profile Trading Levels for Trader Profiles
Style is a touchstone when you need to make a quick decision.
Goodman
Most FOREX traders never consciously develop a style. A specific style will assist you in determining what pairs and crosses to trade,which opportunities to pursue, and which to ignore. A style can be the touchstone allowing you to make a quick and accurate decision about a trade.
Of course, style evolves over time. You will find some of your initial selections and decisions to be incorrect in light of actual market experience. But making those selections before trading is still essential to the codex approach.
The Trader Profile
Style is a touchstone when you need to make a quick decision.
Goodman
Most FOREX traders never consciously develop a style. A specific style will assist you in determining what pairs and crosses to trade,which opportunities to pursue, and which to ignore. A style can be the touchstone allowing you to make a quick and accurate decision about a trade.
Of course, style evolves over time. You will find some of your initial selections and decisions to be incorrect in light of actual market experience. But making those selections before trading is still essential to the codex approach.
The Trader Profile
There are four primary trader profiles. These determine your market focus and
help you select other style and money management parameters.
help you select other style and money management parameters.
1. The guerilla trader.
2. The scalper.
3. The day trader.
4. The position trader.
Moving down the list, each type trades for successively bigger profits.
Conversely, each trades less often.I recommend the new trader focus on being either a scalper or a day trader. If you trade small positions as a guerilla. the pip spreads and ballooning spreads during news and announcements will make it difficult to succeed.
If you hold positions over several sessions as a position trader, you open yourself
up to enormous risks, even if you use stops.Each trader will use bar charts covering three distinct time frames or ranges. The middle-range chart is used to monitor the market on a per-session basis. The smaller range is used for timing entry and exit, and the largest is used to determine long-term trends and keep a perspective so that you don’t lose the forest for the trees. Trading Levels for Trader Profiles Use the middle-range chart and prices for selecting candidate markets.
Use the largest-range chart to gain a longer-term perspective. Use the
smallest-range chart for timing entry and exit.Guerilla: 5 second, 1 minute, 5 minutes.Scalper: 1 minute, 5 minutes, 30 minutes.Day trader: 5 minutes, 30 minutes, daily.Position trader: 30 minutes, daily, weekly.These are only general recommendations and may be adjusted to your own trading needs and propensities. Be sure you select a broker/dealer who offers the chart types and time frames you require for your trading.
Trading Levels for Trader Profiles
Codex Markets
I recommend that all traders begin with a single market—the most popular one: USD/EUR. This pair represents the interaction between the two most widely held currencies in the world.
The first determination for selecting further markets to trade is your trader profile. The shorter term you decide to trade, the more volatile the markets you should seek.
Some factors are not quantifiable. If you like the looks of a market and how it trades, add it to your codex. Conversely, don’t fight a market that treats you badly; deselect it and try another.
Currency Personalities
Some traders never figure out this simple and valuable fact: Different pairs and crosses exhibit their own personalities. These personalities do change, but typically only over a long period of time.Personalities can be defined by the market environment factors of directional movement, volatility, thickness, and rhythm.
Over a period of time trading you will find currency personalities that agree with your style of trading and personalities that do not. By keeping a record of basic ME characteristics in your codex notebook you will learn which are which.
I recommend a battery of five pairs and five crosses. As you trade, you will certainly find other markets that appeal to you. Be sure to have a good sense of their volatility before trading them. Watch a market for 30 days before ever trading in it. Get a fine-tuned sense of its personality.
Markets for Trader Profiles
My favorite FOREX markets. Work with Tier One, move on to Tier Two. Avoid Crosses and Exotics until you have mastered a few pairs.
The euro/U.S. dollar (EUR/USD) is the most popular pair traded. it
offers lots of liquidity and variety for all trader profiles. Be aware of U.S. Federal Reserve announcements and U.S. Bureau of Labor and other govern-mental reports. These news items can have a powerful and immediate effect on prices, directional movement, and volatility. Pip spreads may balloon from 1 or 2 pips to 30 or more pips, especially if you are using a retail market-maker broker/dealer.
My advice: Stay out of the markets during these times. Sit on your hands
and watch the reaction to the news for price trend indications. It is not uncommon for prices to react in one direction after news, only to gradually move back in the opposite direction over the course of the trading session.
Keep in mind that a market can look enormously different on different
chart scales and also within different time frames. Use only your three bar charts and no others. A market’s personality may look different on different bar charts, as a function of either the scale of the chart or the range of the chart.
The same currency pair may exhibit different personalities and market environ- ment characteristics over a 5-second chart, a 30-minute chart, and a daily chart. Don’t let chart scales or ranges confuse you; it is easy to let this happen!
Chart Scales
Remember, how you configure a chart can make a world of difference. Try different colors and backgrounds. A 5-minute chart for 6 hours can look much different than a 5-minute chart for 24 hours. Trading platforms and chart services scale the data to fit the same size window. Select a time period that works for you and keep to it consistently. Even resizing a chart on your computer screen can make it appear different.
In FOREX little things mean a lot it doesn’t take much to throw a trader off stride!
Style and Market Environment
After you’ve decided on markets to trade, keep an informal record of their market environment characteristics. You’ll soon find you do better with some ME combinations than with others. Armed with this information, you can more easily sort future potential selections and market candidates. Eyeballing a market involves watching the four market environment factors and the matrix of
your three time-scale bar charts. With this simple and visual tool set, you will always be in very close touch with any market.
Psychology and Attitude The sum total of all buy and sell orders determines what the market does and where it goes. But all traders are human, and the primary emotions of fear and greed lie hidden sometimes not very deeply beneath the buy and sell orders.
Even in this day of robots, black boxes, and computer-based trading with
no human involvement in the order-entry process, fear and greed reign supreme. A human had to write the program, and that person’s propensities for profit (greed) and loss (fear) are built into the code.
Your attitude and emotions will play some part in every aspect of your trading. Every decision you make, large or small, has an emotional component from the tools you select to the markets you monitor, to when you enter and exit a market. They are always there,and denying them is a poor solution.
Controlling your emotions is the key to success. Knowing they are there,constantly monitoring them,and being able to keep them in check are your goals from the time you sit down to trade to the time you walk away from your computer.
Steps to Emotional Success
“Know thyself ” is the old Socratic adage. Nowhere is it more important than in the markets. The more leveraged the markets, the faster and harder personality
weaknesses will be driven to the surface.
Step One: I,Trader What sort of personality are you? We tend to define traits in terms of pairs or dichotomies: positive/negative, introverted/ extroverted, calm/excitable. It is certainly possible any combinations from each dichotomy could define a successful trader. But the odds,and my experience over 30 years, seem to favor certain combinations over others.
A happy/extroverted/calm personality is probably the ideal successful trader candidate. I am a positive/introverted/calm type. The greatest trader I ever knew was Charles
2. The scalper.
3. The day trader.
4. The position trader.
Moving down the list, each type trades for successively bigger profits.
Conversely, each trades less often.I recommend the new trader focus on being either a scalper or a day trader. If you trade small positions as a guerilla. the pip spreads and ballooning spreads during news and announcements will make it difficult to succeed.
If you hold positions over several sessions as a position trader, you open yourself
up to enormous risks, even if you use stops.Each trader will use bar charts covering three distinct time frames or ranges. The middle-range chart is used to monitor the market on a per-session basis. The smaller range is used for timing entry and exit, and the largest is used to determine long-term trends and keep a perspective so that you don’t lose the forest for the trees. Trading Levels for Trader Profiles Use the middle-range chart and prices for selecting candidate markets.
Use the largest-range chart to gain a longer-term perspective. Use the
smallest-range chart for timing entry and exit.Guerilla: 5 second, 1 minute, 5 minutes.Scalper: 1 minute, 5 minutes, 30 minutes.Day trader: 5 minutes, 30 minutes, daily.Position trader: 30 minutes, daily, weekly.These are only general recommendations and may be adjusted to your own trading needs and propensities. Be sure you select a broker/dealer who offers the chart types and time frames you require for your trading.
Codex Markets
I recommend that all traders begin with a single market—the most popular one: USD/EUR. This pair represents the interaction between the two most widely held currencies in the world.
The first determination for selecting further markets to trade is your trader profile. The shorter term you decide to trade, the more volatile the markets you should seek.
Some factors are not quantifiable. If you like the looks of a market and how it trades, add it to your codex. Conversely, don’t fight a market that treats you badly; deselect it and try another.
Currency Personalities
Some traders never figure out this simple and valuable fact: Different pairs and crosses exhibit their own personalities. These personalities do change, but typically only over a long period of time.Personalities can be defined by the market environment factors of directional movement, volatility, thickness, and rhythm.
Over a period of time trading you will find currency personalities that agree with your style of trading and personalities that do not. By keeping a record of basic ME characteristics in your codex notebook you will learn which are which.
I recommend a battery of five pairs and five crosses. As you trade, you will certainly find other markets that appeal to you. Be sure to have a good sense of their volatility before trading them. Watch a market for 30 days before ever trading in it. Get a fine-tuned sense of its personality.
Markets for Trader Profiles
My favorite FOREX markets. Work with Tier One, move on to Tier Two. Avoid Crosses and Exotics until you have mastered a few pairs.
The euro/U.S. dollar (EUR/USD) is the most popular pair traded. it
offers lots of liquidity and variety for all trader profiles. Be aware of U.S. Federal Reserve announcements and U.S. Bureau of Labor and other govern-mental reports. These news items can have a powerful and immediate effect on prices, directional movement, and volatility. Pip spreads may balloon from 1 or 2 pips to 30 or more pips, especially if you are using a retail market-maker broker/dealer.
My advice: Stay out of the markets during these times. Sit on your hands
and watch the reaction to the news for price trend indications. It is not uncommon for prices to react in one direction after news, only to gradually move back in the opposite direction over the course of the trading session.
Keep in mind that a market can look enormously different on different
chart scales and also within different time frames. Use only your three bar charts and no others. A market’s personality may look different on different bar charts, as a function of either the scale of the chart or the range of the chart.
The same currency pair may exhibit different personalities and market environ- ment characteristics over a 5-second chart, a 30-minute chart, and a daily chart. Don’t let chart scales or ranges confuse you; it is easy to let this happen!
Chart Scales
Remember, how you configure a chart can make a world of difference. Try different colors and backgrounds. A 5-minute chart for 6 hours can look much different than a 5-minute chart for 24 hours. Trading platforms and chart services scale the data to fit the same size window. Select a time period that works for you and keep to it consistently. Even resizing a chart on your computer screen can make it appear different.
In FOREX little things mean a lot it doesn’t take much to throw a trader off stride!
Style and Market Environment
After you’ve decided on markets to trade, keep an informal record of their market environment characteristics. You’ll soon find you do better with some ME combinations than with others. Armed with this information, you can more easily sort future potential selections and market candidates. Eyeballing a market involves watching the four market environment factors and the matrix of
your three time-scale bar charts. With this simple and visual tool set, you will always be in very close touch with any market.
Psychology and Attitude The sum total of all buy and sell orders determines what the market does and where it goes. But all traders are human, and the primary emotions of fear and greed lie hidden sometimes not very deeply beneath the buy and sell orders.
Even in this day of robots, black boxes, and computer-based trading with
no human involvement in the order-entry process, fear and greed reign supreme. A human had to write the program, and that person’s propensities for profit (greed) and loss (fear) are built into the code.
Your attitude and emotions will play some part in every aspect of your trading. Every decision you make, large or small, has an emotional component from the tools you select to the markets you monitor, to when you enter and exit a market. They are always there,and denying them is a poor solution.
Controlling your emotions is the key to success. Knowing they are there,constantly monitoring them,and being able to keep them in check are your goals from the time you sit down to trade to the time you walk away from your computer.
Steps to Emotional Success
“Know thyself ” is the old Socratic adage. Nowhere is it more important than in the markets. The more leveraged the markets, the faster and harder personality
weaknesses will be driven to the surface.
Step One: I,Trader What sort of personality are you? We tend to define traits in terms of pairs or dichotomies: positive/negative, introverted/ extroverted, calm/excitable. It is certainly possible any combinations from each dichotomy could define a successful trader. But the odds,and my experience over 30 years, seem to favor certain combinations over others.
A happy/extroverted/calm personality is probably the ideal successful trader candidate. I am a positive/introverted/calm type. The greatest trader I ever knew was Charles
B. Goodman. He was a negative/introverted/calm personality.
Perhaps the most critical personality spectrum is calm/excitable. The markets want you to get excited. The excited person will tend to wear rose colored or gray-colored glasses when making decisions.
Human nature being
what it is, we all tend to get excited at the most critical times—just when, as traders, we need to be calm.
The only way to avoid this dilemma is to know in advance that getting
excited can and will happen.By monitoring your emotions, you can detect early clues of the onset of over excitement. Part of this solution is the daily trade plan that I discuss in Part Four.
Keep notes of when emotions interfered with your trading what markets,what time of day, at entry or exit, and so on. You’ll soon see patterns, and just knowing what causes your emotions to come unglued is a big step in controlling them.
Step Two: Charting Your Emotions Use a chart to monitor your emotions. I have used biofeedback techniques and they have worked well for me. Other techniques are also effective.
Keep an hourly chart of your emotions for the spectrum that may give you the most problems as a trader or just on a per-session basis. If it is calm/excitable, as it is for most of us, make copies of a simple chart as shown in Figure 6.4. You are attempting to quantify an emotional quality and that is very difficult,but as a trader, you need something to help you consider your emotional state. It also provides a long-term record for review. At the end of each week you may want to line up the markets you’ve been watching against your emotional points and observe for any correlations. You will be surprised at what you see and what you can learn. Perspective is some- times enormously valuable to the trader.
Step Three: Handling Profits and Losses The biggest driver of emotions is profit and loss. This is why paper trading is almost never particularly useful, at least with respect to seeing how good a trader you are in the long run. Profits make us happy and excited; losses make us sad and irritable. Every new trader I have ever known has made money when trading a demo account. When they begin trading real money in a real account,things happen.
The dynamics of trading real money are enormously different from trading for fun.If profits and losses cause too big an emotional swing, you may be making trades involving too much money. There is an old saying,“Trade down to a good sleep.” The money in play may be too much,or you are counting too heavily on success. Don’t ever trade with money you couldn’t afford to lose or give away to charity.
Don’t count your chickens before they hatch. I have seen traders do so well on small accounts that they have quit their day jobs to trade full time, and they quickly fail. Trade as a hobby.If you ever get to the point where you have made a year or two years’income in the markets over some significant period of time, only then consider full-time,professional trading.
Emotional State Chart.
How much should you commit to trading? The simple answer is never trade with money you couldn’t afford to lose or give away. That may be $500 or $500,000. If you make some substantial initial profits,don’t get the King Kong syndrome, quit your day job, buy a $10,000 trading station, and order brochures from the local Mercedes dealer.
Do add money to your account. Yes, add money.
This is an old psychological trick Charlie taught me, and for newbies with small accounts it really works if only because it keeps the King Kong syndrome at bay.How much should you commit to any specific trade? Many traders like to
rate their trades, perhaps from 1 being a good trade to 3 being a fantastic opportunity. This may work when you have traded for a year or longer, but I don’t recommend it initially; it’s just one more parameter to juggle,one more decision to make. As a new trader, your pretrade ratings may not be accurate.
The “Trading Campaigns” table (see box) shows my recommendations for trade size vis à vis total account size. I recommend dividing your capital into 30 trading units with 10 units, or trades, in three different campaigns. I learned this from Bruce Gould, commodities trader extraordinaire, and it’s golden. Mr. Gould is perhaps the sharpest money management guru in the trading business. His old newsletters from the 1970s and 1980s are available from his web site, "brucegould" and are definitely worth reading by any new trader in stocks, commodities, or FOREX.
Don’t let losses discourage you. Even the best traders have periods of long
losing streaks. My record is 16 lemons in a row. I came close to throwing in the
towel. If you have several losses or a single large loss, the first thing to do is turn
off your computer(after closing all your trades,of course) and take a break.
Make the break time long enough to accomplish two things:
Perhaps the most critical personality spectrum is calm/excitable. The markets want you to get excited. The excited person will tend to wear rose colored or gray-colored glasses when making decisions.
Human nature being
what it is, we all tend to get excited at the most critical times—just when, as traders, we need to be calm.
The only way to avoid this dilemma is to know in advance that getting
excited can and will happen.By monitoring your emotions, you can detect early clues of the onset of over excitement. Part of this solution is the daily trade plan that I discuss in Part Four.
Keep notes of when emotions interfered with your trading what markets,what time of day, at entry or exit, and so on. You’ll soon see patterns, and just knowing what causes your emotions to come unglued is a big step in controlling them.
Step Two: Charting Your Emotions Use a chart to monitor your emotions. I have used biofeedback techniques and they have worked well for me. Other techniques are also effective.
Keep an hourly chart of your emotions for the spectrum that may give you the most problems as a trader or just on a per-session basis. If it is calm/excitable, as it is for most of us, make copies of a simple chart as shown in Figure 6.4. You are attempting to quantify an emotional quality and that is very difficult,but as a trader, you need something to help you consider your emotional state. It also provides a long-term record for review. At the end of each week you may want to line up the markets you’ve been watching against your emotional points and observe for any correlations. You will be surprised at what you see and what you can learn. Perspective is some- times enormously valuable to the trader.
Step Three: Handling Profits and Losses The biggest driver of emotions is profit and loss. This is why paper trading is almost never particularly useful, at least with respect to seeing how good a trader you are in the long run. Profits make us happy and excited; losses make us sad and irritable. Every new trader I have ever known has made money when trading a demo account. When they begin trading real money in a real account,things happen.
The dynamics of trading real money are enormously different from trading for fun.If profits and losses cause too big an emotional swing, you may be making trades involving too much money. There is an old saying,“Trade down to a good sleep.” The money in play may be too much,or you are counting too heavily on success. Don’t ever trade with money you couldn’t afford to lose or give away to charity.
Don’t count your chickens before they hatch. I have seen traders do so well on small accounts that they have quit their day jobs to trade full time, and they quickly fail. Trade as a hobby.If you ever get to the point where you have made a year or two years’income in the markets over some significant period of time, only then consider full-time,professional trading.
How much should you commit to trading? The simple answer is never trade with money you couldn’t afford to lose or give away. That may be $500 or $500,000. If you make some substantial initial profits,don’t get the King Kong syndrome, quit your day job, buy a $10,000 trading station, and order brochures from the local Mercedes dealer.
Do add money to your account. Yes, add money.
This is an old psychological trick Charlie taught me, and for newbies with small accounts it really works if only because it keeps the King Kong syndrome at bay.How much should you commit to any specific trade? Many traders like to
rate their trades, perhaps from 1 being a good trade to 3 being a fantastic opportunity. This may work when you have traded for a year or longer, but I don’t recommend it initially; it’s just one more parameter to juggle,one more decision to make. As a new trader, your pretrade ratings may not be accurate.
The “Trading Campaigns” table (see box) shows my recommendations for trade size vis à vis total account size. I recommend dividing your capital into 30 trading units with 10 units, or trades, in three different campaigns. I learned this from Bruce Gould, commodities trader extraordinaire, and it’s golden. Mr. Gould is perhaps the sharpest money management guru in the trading business. His old newsletters from the 1970s and 1980s are available from his web site, "brucegould" and are definitely worth reading by any new trader in stocks, commodities, or FOREX.
losing streaks. My record is 16 lemons in a row. I came close to throwing in the
towel. If you have several losses or a single large loss, the first thing to do is turn
off your computer(after closing all your trades,of course) and take a break.
Make the break time long enough to accomplish two things:
(1) Clear your
head of trading and the intense emotion of the loss. This usually takes more than a few days.
head of trading and the intense emotion of the loss. This usually takes more than a few days.
(2) When you feel refreshed and clearheaded, analyze the losses. What caused them and what can you do to prevent them from recur-ring? Make the appropriate adjustments and begin afresh, slowly. Don’t dwell
on losses or profits; come to each trading session fresh.
Another tip: Don’t discuss your trading with anyone, at least not in any
detail. Avoid trading clubs and getting addicted to the numerous
www.cents0.tk Ten Most Common Causes of Losing Trades
1.Over trading.
2.Stops too close or unrealistic with respect to price objectives.
3.Spur-of-the-moment trading.
4.Trading high-volatility, high-directional-movement markets.
5.Trading the news instead of the reaction to it.
6.Trading outside of your market environment profile.
7.Trading crosses and exotics.
8.Trading over multiple sessions.
9.Trading when under duress.
10.Trading with money you cannot afford to lose
Record Keeping Accurate,honest record keeping is essential to knowing your emotions and keeping them at bay. By studying your trading records, you’ll get all the feedback you need to see how emotions are affecting your trading. In Part Four I
describe a daily and weekly trade plan and other records you should maintain.
If you can’t keep a daily report,at least keep a diary at the end of each trading session. Whether you keep a diary or a report, each one should have attached a session chart of each market you traded. In this way, you can periodically review what you wrote vis-à-vis the markets you were trading at the time.
on losses or profits; come to each trading session fresh.
Another tip: Don’t discuss your trading with anyone, at least not in any
detail. Avoid trading clubs and getting addicted to the numerous
www.cents0.tk Ten Most Common Causes of Losing Trades
1.Over trading.
2.Stops too close or unrealistic with respect to price objectives.
3.Spur-of-the-moment trading.
4.Trading high-volatility, high-directional-movement markets.
5.Trading the news instead of the reaction to it.
6.Trading outside of your market environment profile.
7.Trading crosses and exotics.
8.Trading over multiple sessions.
9.Trading when under duress.
10.Trading with money you cannot afford to lose
Record Keeping Accurate,honest record keeping is essential to knowing your emotions and keeping them at bay. By studying your trading records, you’ll get all the feedback you need to see how emotions are affecting your trading. In Part Four I
describe a daily and weekly trade plan and other records you should maintain.
If you can’t keep a daily report,at least keep a diary at the end of each trading session. Whether you keep a diary or a report, each one should have attached a session chart of each market you traded. In this way, you can periodically review what you wrote vis-à-vis the markets you were trading at the time.
Don’t Ride These Trends!
among traders. Each trader is unique and needs to think over all the factors involved and make his own realistic decisions. In trading, the Socratic admonition to “know thyself ” is so very important.
If you have psychological or emotional weaknesses, nothing will bring them out faster, in the form of financial loss, than the markets. The more leveraged the market, the faster it will happen. Consistently monitor your emotional state, keep good records, and frequently review your trades vis-à-vis your emotions. When you make mistakes, learn what you can from them and move on to the next trade with a clear head.
among traders. Each trader is unique and needs to think over all the factors involved and make his own realistic decisions. In trading, the Socratic admonition to “know thyself ” is so very important.
If you have psychological or emotional weaknesses, nothing will bring them out faster, in the form of financial loss, than the markets. The more leveraged the market, the faster it will happen. Consistently monitor your emotional state, keep good records, and frequently review your trades vis-à-vis your emotions. When you make mistakes, learn what you can from them and move on to the next trade with a clear head.
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