Last update: July 2021

Trading for Beginners video: How to Develop a Trading Identity

In this trading for beginners video, Coach Tim goes over the importance of creating your own trading identity.

Life is change. We’re in a constant state of change whether we realize it or not. Our biology, our mindset, and our judgment are always changing. How do we hold to one identity as a trader when everything around us – including market behavior, risks, and strategies – are also changing?

The answer is we don’t. However, any changes we allow must come in based on a thorough understanding of how things work. The other part of developing your trading identity is that there are some things that don’t change, at least not very much. That’s where we’re going to start.

When you’re a new investor or trader, it’s important to know what your long-term goal is and where this journey is taking you. Have you spent some time thinking about what characteristics are required to be a profitable trader? This article is going to examine those very things. But first, I need to tell you about my own journey and my own story.

When I started trading, I was 25 years old. I had recently moved and was looking for a job. My plan through college was to get my degree in Political Science, go to law school, and become an attorney. Life doesn’t always go as planned, and I was quickly realizing that I was not destined for that path. So, I started looking for a job. I landed one job as a business-to-business copy paper salesperson. The team seemed nice, the product was good, the compensation was more than I had made in my life, but my heart just wasn’t in it. I didn’t make it out of training before I politely moved on. The second job was working at a Ford dealership as a journeyman salesperson. Again, I love trucks, and Ford is a brand I’ve always been around. My dad would drive old Ford trucks from when I was young age. Again, I started the training and it just didn’t seem like the path I was destined for, so I politely moved on.

I was at a point in my life, where I knew I needed something more stable and lucrative than what I was doing. I made money in college in a few different ways. I would work for my dad on housing projects or I would referee sports games. When I left these first two jobs, I was presented with an opportunity: to go and become a minor league baseball umpire. The catch was I needed to go to Florida for two months, and then the life of an umpire is to be on the road constantly. As much as I loved being around the sport, I didn’t want to be on the freeway or in an airport away from my young daughter that frequently, so I passed.

This is when the financial markets, investing and trading came into my life. One opportunity after another just didn’t seem to fit. About this time, after listening to my frustrations one of my oldest friends said to just do what he did: trade.

I had never considered it and didn’t even know it was an option. I was instantly ALL IN. Practice trading became an addiction for me, and I jumped into live trading too quickly while taking as many classes as I could. The first year flew by. After that year, I was no longer ignorant about what trading was. I was aware of the field and I was competent with the ideas, strategies, and techniques. I wasn’t completely there, though. I hadn’t arrived. See, everyone’s journey, when learning something new goes through four basic phases:

1. Ignorance
2. Awareness
3. Competency
4. Proficiency

Sometimes, we can make a mental jump into one phase only to be knocked back when we get new information or more experience. Let me give you an example.

As a young trader after a few months of good trading, I thought I was proficient. A true know-it-all. However, the market has a way of teaching you lessons you didn’t realize were there. True proficiency can only come from time, experience, and practice. I was truly ignorant about some concepts that simply weren’t a part of my first year in trading until I took my first and second mentorships.

The thing about the four phases of proficiency is they don’t simply happen once. They happen over and over again, even within your field of study or profession. As a trader, every single year I’m presented with something new that I was ignorant about that I have to work on to make sure I understand how to control if it’s a risk or how to use if it’s an opportunity. This is why life is a journey. We’re in a constant state of change.

This brings us back to the original question. How do we hold to one identity as a trader when everything around us – including market behavior, risks, and strategies – are also changing? The answer is we don’t. There are principles that we must hold onto, though. Over my 11 years as a trader, the following advice is based on my experience as a mentor regarding the successes and failures I’ve seen from the different parts of the market.

Selecting a Time-Frame

1. Day Trader
2. Swing Trader
3. Position Trader
4. Investor

One of the first things you need to identify is what time frame you will execute your trade on. There are four basic types:

• Day
• Swing
• Position
• Investor

Day Traders

Day traders are those that get in and out within the same day. You might be in for five minutes or five hours, but your mindset is to execute your trade today, generally, during the session, you’re in and treat each day as a new opportunity. When conducting technical analysis, day traders tend to use five-minute, 15 minute, or hourly charts. When managing positions, day traders usually either a) exit the trade if they’re done for the day or b) use an advanced order technique to control the risk or trail the stop. Journaling and reviewing what happened over the course of the day at the end of each trading session is also common. A day trader’s mindset is to get in, get out, and move on; mentally, monetarily, and strategically. People who make good day traders tend to be systematic, disciplined, have good computer skills, good judgment, don’t have gambling streaks, and can abide by strict money management systems. One of the most important characteristics of a day trader is patience. Good day traders don’t just go in and start clicking buttons like they’re playing a video game. You have to know when you take your trades based on your system and execute. One question I usually ask day traders is when was the last time they sat down to trade and didn’t take a single trade? If they can’t remember, they may be over-trading and not patient enough.

Swing Traders

Swing traders tend to be in and out within a few days to a few weeks. The idea is that you are going to find trades that can net you a profit this week or next. Most analysis is conducted on the daily and hourly charts. Swing traders tend to be active and engaged with the market but not necessarily needed to be there for every single minute of their trade. Essentially, you run your routine every day, but when you’re done, you move on with your day and conduct other business, relying on your structure, your trading plan, and your orders to control your trades. Characteristics of good swing traders include an understanding of intermarket analysis, developing good watch lists for each strategy they use, a comprehension of the weekly market cycle, an understanding of how to read an economic calendar, and a true appreciation for their strategies. Swing traders are the most common type of new trader because most people are still working a 9-5 job or are self-employed and thus engage the market once a day with the intention of making money over time.

Position Traders

Position traders are the type of traders who will hold for a few weeks or a few months in a position. Most position traders will check their trades occasionally, sometimes daily, but not necessarily every day. Some position traders may just check their positions once or twice per week depending on the system. The news and analysis that you conduct will be based more on fundamental analysis, market information, sector rotation, and big picture analysis than a day or swing trader does. When entering new trades, position traders might look to get in once or twice a week, but they wait for key opportunities. Journaling and review are usually done once a week or once a month. Characteristics of good position traders include patience, conducting a thorough analysis, relying on systems to make decisions, and having an understanding and confidence that when they take a trade, the results are based on long-term distribution models. This last one is very important. New traders tend to get discouraged if they have a losing trade. Being a position trader is harder for a new trader. If the first few positions don’t work they can tend to give up or change their system. Good position traders have confidence, either through experience or back-testing, that their system is a good system and must be adhered to.

Investors

Investors tend to look at long term, fundamentals, valuation, and key opportunities before making a decision. Most technical analysis is conducted on the chart, they don’t always look at the market daily, but they seem to be engaged with what is happening globally from an economic, political, and news perspective. Good investors enter trades methodically, with balance and after having done thorough research. Journaling and review tend to be done monthly or quarterly. Characteristics of good investors usually include having cool confidence, having other sources of income to rely on, patience, keeping in mind their long-term financial goals, and they develop systems but are willing to move as the markets move. Fundamental analysis is a big part of being a good investor.

The Role of Technical vs. Fundamental

Part of the process of developing a trading identity is to master the art of technical analysis, fundamental analysis, or both. Whether you need to rely on one over the other depends greatly on the type of trade that you’re going to take. If you’re a day trader, then fundamentals matter the very least. Think about it: if you buy a stock and then sell it in 15 minutes, does it really matter whether it’s a good company or not? No, it doesn’t. As a swing trader, fundamentals can have an impact, but it tends to be pretty small. When you get into position trading, then fundamentals start to really matter along with understanding seasonality and cycles. Investors look at fundamentals first. If you don’t believe in the idea then you won’t invest. The importance of fundamental versus technical thinking is part of the decision-making process you have to go through when developing your trading identity.

Does this apply to all markets and all strategies?

Some markets are better suited for certain types of trading. For example, forex, or the trading of one currency pair for another with leverage and through a forex broker, tends to be suited for day trading. Does that mean you can’t invest in a forex pair? No, it doesn’t. But let’s consider some of the capital markets:

1. Currency
2. Commodities
3. Companies
4. Insurance
5. Property
6. Debt

Of the 6 above, which is best to day trade with? Which do you use for swing trading? Position Trading? Investing? It seems like a pretty difficult thing to try and day trade real estate, right? See, there are certain techniques and strategies that are better suited for one over the other. As you learn how to invest and trade, you can build your technique in all of these areas. You don’t have to just be a swing trader or investor. Depending on your approach to each market, you may decide to treat one opportunity separately from another.

This brings me back to my journey as a trader. When I started, the idea of holding onto something for a month made no sense to me. Now, I have systems where I enter positions that I’m willing to hold for years. What changed? Well, time passed. I experienced the marketplace as a trader and realized that I don’t have to just be one thing. Does this mean I gave up on day trading? No, in fact, I use all time frames. I think the goal is to become proficient, adept, nimble, successful, and confident enough to know how to deal with the market in any condition. When you’re new, you may need to start with something more managed. The longer you do this, the more you can build good position trading or investing strategies. It’s not buy-and-hold, it’s buy-and-manage that I think of when I think of savvy investors.

Remember: life is about change, and as you develop as a trader, you’ll be presented with new ideas and opportunities.

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