Types of Traders

What Kind of Trader are You?

Novice Trader - Is a person who is just learning to trade.  He/She places trades without completely knowing what they are doing and they try many different approaches. Sometimes they take trades from broker recommendations, tips from friends, chat rooms, television reports or anything else that makes sense at their level of knowledge.  Market professionals love this type of trader.   Novice trader behavior is very predictable and so it easy to profit from them by taking their money. 

Gambler - Is an individual who places trades for the thrill of the game.  Similar to casino patrons, they generally also lose money.  Of course, they will have some winners and you can hear them bragging about these at the water cooler.   They just can't help themselves.  They would rather get an adrenaline rush as opposed to making good trading decisions.

Systematic Trader - This type of trader has learned enough to realize that they need a systematic approach to the market to make consistent profits.  They set about finding ways to do this using fundamental analysis, technical analysis, chart patterns, time cycles, mathematics or something else to help them win more money than they lose.  Sometimes these systems work reliably and sometimes they do not.  The system tells the trader what actions to take.  The trader then follows their system as closely as possible to try to replicate the system in real time using real money.  Hopefully the system designer knows what they are doing, especially in the areas of risk management and position sizing.  Following a bad system is no fun and can be quite costly.  Following a well designed system is simply the best way to get started and stay on the road to profitability.  

Discretionary Trader - Is a person who has spent a long time (at least 10 years) studying the markets carefully, trying many different strategies, learning from other experts and buying and selling many securities.  This individual has developed an intuitive knowledge of the different market behaviors, patterns and pitfalls through his/her own experiences. Becoming a good discretionary trader takes years of active involvement, with many hard and expensive lessons learned along the way.  This type of trader gets an edge by using their intuitive understanding of the stock market to consistently read the market and make the right moves to make and keep their profits. Some of the world's best traders are discretionary traders. However, they are also very systematic.  Their system is burned into their brain and they follow it instinctively.

Which type of trader are you?  Which do you aspire to be?