No single trading style fits all. Sometimes it pays to take a good, hard look at your personality before jumping in. And sometimes you need a style overhaul.
In the final moments of the iconic movie Wall Street, Gordon Gekko confronts his former protégé Bud Fox after discovering the wannabe set him up to lose millions to a hedge fund rival in a corporate buyout. Against the backdrop of New York’s Central Park, Gekko verbally and physically abuses Fox, but ultimately just asks, why?
“I don’t know,” says Fox. “I guess I realized I’m just Bud Fox. As much as I wanted to be Gordon Gekko, I’ll always be Bud Fox.” Looking past the cinematic drama, there’s actually a very important lesson to be learned from this scene for all traders.
Without a baseline to start from, many traders enter the markets for the first time with a preconceived notion about how things work, how they will react in certain situations, and what approach they should take. This can lead to disaster.
For example, the popular image of a day trader as someone who battles the market tick by tick, extracting “fast money” in the process, is pervasive in our culture and creates a siren song that often attracts beginners to trading.
But the reality is, day trading is a challenging and unforgiving trading style. It requires your full attention during market hours, plus the ability to process and interpret a constant flow of news and information. In addition, you have to be able to quickly flip through charts in order to find good setups and trade opportunities.
It’s a good fit for some, but what if you’re the type—like myself—who tends to get overwhelmed by too much data and information at one time? Maybe you need pockets of calm and quiet during the day in order to perform your best. In that case, despite its outward appeal, day trading would be the worst way for you to trade. Your (true) personality might lend itself to swing trading, a style that looks to capture gains in one to four sessions, or position trading, which has an even longer horizon determined by the individual.
The same concept applies when deciding on a trading methodology. Engineers, airline pilots, and those who come from occupations that require strict, objective interpretations of information are often better off taking a technical approach. Those with a background in the arts or law might use fundamentals, including corporate earnings or economic data, whose direct impact on stocks is open to interpretation.
Whether you are new to the markets or seasoned but still trying to find your trading sweet spot, you don’t need a sociopathic billionaire to slap you around in order to potentially improve your results. Instead, just take an honest look at your personality.
You may find that some simple changes to your trading style—changes that complement your personality instead of fighting it—can make all the difference in the world.
For short-term or position traders, TD Ameritrade’s cloud platform puts research, “My Dock” screen personalization, trading chat, and more in easy reach.
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