As an investor, you approach building your investment portfolio differently than others do. Today, more people manage their own portfolios than before. This is because online brokerage firms are replacing traditional brokerage houses. Online brokerage firms often offer lower trade and administrative fees, more perks and as much educational information as their traditional brokerage counterparts. One service more investors are receiving as they transition to online brokerage firms is education to help them find their personal trading style. As an investor, discovering your personal investing style can help you capitalize on your trading strengths.
Trading Style Explained
Different theories exist to explain trading styles. Some theories focus on risk tolerance, others on trading types. Still other theories look only at personality. The best way to approach finding your trading style is to look at a combination of personality, risk tolerance, investment goals and interests or passions. This way, you can design a personal investing strategy that best reflects your investment goals. You can also make the best use of share market news that comes your way and seek out the necessary information to grow your portfolio.
4 Trading Styles
There are four main trading styles that may resonate with you. There can be some overlap between these styles. Your personal trading style can be influenced by where you are in your income earning lifecycle. As your retirement date approaches, you may find your trading style shifting to accommodate changing goals.
- Risk trader. As a risk trader, you exhibit a high tolerance for risk, which is defined as an ability to successfully withstand the tension of making investments where the shelf life is short and the outcome is difficult to predict. If you gravitate toward riskier investments like emerging markets, real estate, fast-moving commodities, futures, hedge funds and gambling, you may be a risk trader. Risk traders have a personality and temperament that enjoys the adrenaline rush of competing and taking risks.
- Day trader. As a day trader, you have more patience to see a task through completely. You desire to start and finish a trade in the same day. You may notice that longer trading life cycles are frustrating for you because you feel anxious about the “carryover” from one day to the next as you wait to see the result. So your risk tolerance is still high as a day trader, but you want to see results before the day ends.
- Swing trader. If you are a swing trader, you have a more patient temperament than a day trader or a risk trader, but you still want a fairly quick resolution to your trade decisions. You may choose a mix of very short and mid-term investments such as stocks mixed in with some mutual funds and longer range commodities. As a swing trader, you have a median risk tolerance. Your portfolio is likely a mix of higher and lower risk investments.
- Position trader. Position traders are models of patience and vision in the investing world. As a position trader, you excel when you select long-term investment options like stocks and mutual funds. These can be quite volatile in the short term but tend to deliver stable profits over the long term. You remain calm when the market fluctuates. You have the vision to foresee market turnarounds when your risk trader, day trader and even swing trader colleagues are folding.
Once you find your trading style as a risk trader, day trader, swing trader or position trader, you will be better equipped to target your areas of strength and build a profitable portfolio that uniquely reflects your passions, priorities and retirement goals.
About the Author: Mark Chow began building his portfolio through day trading. He later discovered his unusual patience made him ideal for position trading. His portfolio tripled after he adjusted his personal strategy toward position trading.