What Type of Trader are you? Greed Based Traders vs Fear Based Traders.

There are plenty of ways to define what type of trader you are but lets start with a simple yet immensely effective exercise.

Fear & Greed are the dominant emotions expressed in the markets on a day-to day basis (we can go deeper than this however for the sake of his article we’ll keep it nice and easy).

Fear & Greed influence every part of our lives but they are particularly evident when trading Financial markets.  I would challenge anyone who told me that they’d never experienced such emotions when placing and managing trades.  There are many out there who would have you believe that trading can be an emotionless activity.  I would love to believe that but my experience as a Trader and a coach to traders dispels that.  We’re human beings, a constant bag of emotions and it’s by accepting that and trying to use it to our advantage that we can learn, grow and succeed as both traders and individuals.

You as an individual and Trader will be predisposed to favouring one over the other but you will certainly experience both emotions during your trading adventures. So lets look at the types of trader:

Greed Based Traders (GBT) tend to be hunting for action.  GBT’s  love the process of buying and selling and will take a trade on the flimsiest of evidence if they think they can turn a quick profit.  GBT’s will trade anything and will always be searching for big profits.  GBT’s tend to fail to treat the market with the respect it deserves.  GBT’s will be addicted to intra- day-trading and believe that using high leverage is a good thing!  They are predisposed to over-trading and over- leveraging their accounts.

Whilst they will enter the market in a heartbeat they are less reluctant to leave a trade quickly, even after every indicator tells them to get out as they want to hang on for the last drop of profit.

Fear Based Traders (FBT) occupy the opposite end of the spectrum.  FBT’s can take ages to take a trade and quite often need everything to line up before they will take a position in the market.  They will often miss lots of opportunities as they wait for the perfect set-up.  They struggle to pull the trigger and invariably will use little or no leverage.  Their money management is good but definitely on the conservative side.

Whereas a GBT gets in fast and gets out slowly a FBT gets in slowly and tends to get out quickly at the first sign of a possible loss or a possible win.  They tend to take small losses….but they also cut their winners short which has an overall impact on their equity curve.  Remember there’s a good chance that 90% of your profits will come from 10% of your trades but a FBT will often miss out on those 10% trades as they’ll snatch at profits far too quickly.

GBT’s are the ones who make the great  fortunes……but also blow up their accounts!  FBT’s tend to plod along.

As I mentioned earlier you will experience both emotions as a trader but which side of the fence do you sit on?  It shouldnt be too hard to work out!  I know that personally I am predisposed to being an FBT.  I believe being an FBT is what allowed me to perserve so long with trading until I gained enough experience to improve my performance.    I recognise my strengths and weakness and my trading  has evolved over time to counter my predisposition.  When I coach Traders it’s one of the first questions I’m looking to have answered.

 Do you think the present crisis in the financial markets has been caused by GBT’s or FBT’s? (Very superficial I know but there’s an element of truth to it.)

 The best traders are able to recognise their strengths and weaknesses and steer a steady course between both the FBT and GBT.  There are plenty of simple tactics you can use to counter your predisposed bias. 

To paraphrase a Robin Sharma line, ‘ Remember awareness precedes clarity, precedes, choice, proceeds action, precedes success!’ If you can work out where your bias lies then you can make changes to your trading approach in order to avoid the pitfalls of either type of trader.