Trade In Harmony With Your Personality

First, vaguely relevant status: It was a pretty flat day today, and I did not make any trades.

Now, on to the matter at hand: Here’s the basic trading workflow I’ve been trying for the last week. It really fits my personality well, as I’ll discuss after I give the steps. There are two phases: the night preparation phase, and the daytime trading phase.

Preparation Phase

• I download updated price data from yahoo finance, (and sometimes eoddata.com)
• I run my custom-coded support and resistance program to scan for stocks nearing an important price.
• When it’s done, I pull up the charts on the candidates (sometimes there are 40 or 50). I throw out the ones that don’t meet my human standards (don’t ask my ex-wife whether I qualify to as ‘human’… just assume I do for our purposes here)
• I update my stocktickr watchlist with the picks, if there are any new ones.
• I place alerts with my broker so that I’ll be emailed if the stocks on my watchlist approach my trigger price.
• I go to sleep with my Blackberry beside me. I don’t set an alarm. I am a night person, so I often don’t wake until shortly after the markets have opened. If I get an email alert before I naturally wake up, my Blackberry wakes me.

Trading Phase

• If the markets are active, and trending, I watch a couple Trade-Ideas scans, jumping from chart to chart, looking for setups that look good for small profits.
• If the markets are boring and flat (like today), I go do something else. I just keep my blackberry with me so I get alerts instantly if something from my watchlist triggers. In a pinch, I can even enter trades from it, but I prefer not to.
• When an email alert comes in, I briefly look at the overall market, the related sector, and the intraday chart of the stock in question. If everything looks as I anticipated, and the TICK isn’t fighting me too hard, I choose my stop, size the trade, and enter the trade.
• If I want to see, in general, what shape my watchlist is in, I glance at my stocktickr page. Just the red and green color of the boxes tells me whether a stock is closer to my target price, and I can drill down to charts if I want the full story.
• I spend a couple hours sometime each day or night reading my favorite trading blogs, listening to my favorite trading podcasts, and generally keeping up to date on what the markets are doing.

Why This Workflow Fits Me

This is far different than the way I used to trade. Why change? Well, many knowledgeable people (Jack Schwager and Van Tharp come to mind, but others as well) urge traders to adopt a trading style that fits their personality. So, a while back I started asking myself, “What is my personality like?” (incidentally, another question you shouldn’t ask my ex-wife!). Two big standout Richard features are that I am not a morning person, and I like variety. This fed my long-term goal to become an automated system trader. I could stay up all night studying the various flavors of math and computer science needed to make profitable market models, and then sleep all day as they are passively traded on my behalf.

That’s great as a long term goal, but my first attempt at making it a reality showed me just how far off that could be. (”Showed” me in the stock market’s favorite manner: by making several thousand dollars evaporate). So, what can I do in the meantime? What I’m trying here is to use the models that I have as sophisticated scanners rather than full automated systems. I massage and filter their output by hand to arrive at a realistic watchlist, which I then trade actively once I’ve received an email alert. This gives me some (maybe even most) of the time and sleep benefits of the automatic trading goal, while also keeping money flowing in. It also keeps me focused on further devoloping the models, because I still use parts of them.

Example of a Workflow/Personality Mismatch

If you were reading my blog in March or so, you may remember that I tried an approach where I just followed a basket of biotech stocks, and tried to become an expert in every aspect of them. That was a disaster! Only 20 stocks? I was so bored! Reading press releases, and understanding their products… blech! Despite how wrong I know it is, I actually used to take trades just to break the monotony. A big warning sign! As it happens, I didn’t lose money using this approach, but I was definitely not happy to start my trading day. Another warning sign.

So, that biotech idea was an example of a trading style that doesn’t fit my personality. So far, I think my new workflow fits me well. Trading is fun for me this way, and I don’t have to fight the tendancy to overtrade as much. I can just remind myself that I’ve already identified good trades, and I simply need to wait for the email alerts. When I am watching Trade-Ideas, I am very selective, and usually only looking to catch a quick 10 cents here and there to stay sharp and augment my income.

How To Pick a Trading Style

So, how do you know if your style fits you? The easiest way to tell, I think, is to be very aware of what you don’t like when trading. Keep a notepad nearby and try to jot down everything that annoys you, or makes you feel uncomfortable, etc. Take the five problems that pop up the most, or that are the most negative, and try to think of adjustments you can make. Note that we’re primarily looking for stylistic or environmental issues, and not poor trades. That said, consistent poor execution can be a symptom of a mismatch between your trading and your personality.

Examples: Don’t like the frantic pace of stocks? Maybe you have a bond trader in you, just dying to get out. Don’t like trying to track hundreds of stocks? Consider specializing in a sector, or trading e-minis. Would you rather trade at night? Maybe you are an FX trader, or even a DAX trader. Can’t take the mental strain of systems with low win rates but big gains? Look for a system with a higher win rate, probably with lower per-win gains. Do you have too many distractions at your home office? Look for a trading room or office space away from home. Are you bored or lonely at lulls in the market? Find a free or paid trading chat room–they’re probably bored too, and you can take turns mocking CNBC hosts until action picks up again. You get the idea.

Summary

There are an unbelievable number of ways to trade, so there is no reason for you to settle for a type of trading that doesn’t fit you. Often we read books or websites and mimic our trading heros. This is a good way to start, but it is never the way to finish. It’s like writing music or novels. Learn from the masters, but find your trading “voice”. Not only will you be happier, but you’ll probably be more profitable, as well. It can take some experimenting–I’m still experimenting—but it is rewarding when aspects of your trading resonate with you.