What Type of Trader Are You?

Most folks are familiar with the distinction between an investor and a trader…

Like Warren Buffett, an investor who looks for deeply valued stocks that can build massive returns over time… often decades.

Whereas a trader looks to exploit short-term moves in the market. The quicker that move, the better.

Identifying which of these two groups you fit into is a common starting point when you first enter the markets.

But for those who decide they’re best suited to trading, that’s just another starting point in working out where they best fit into the markets.

Because working out what type of trading strategy best suits their personality will be vital to making it as a trader long term.

Today, I want to share how I found the strategy that suited me best. And hopefully that helps you get the most out of your trading…

Some Things Just Don’t Gel

Whether it be a social group, work group, or whatever, we’ve all been in situations where things just don’t gel.

Maybe it was the group dynamic and the personalities involved. Or perhaps the activities they were interested in didn’t grab your attention.

Whatever the reason, you didn’t feel the “vibe.”

Well, it’s the same thing with trading…

Traders typically all get lumped together. But there are different types of trading strategies that suit different people.

For whatever reason, some strategies click with some but don’t resonate with others.

Like on the trading floor of the Chicago Board Options Exchange, where I started my career almost 40 years ago…

One popular strategy was to do quick trades for a little bit of profit. Do those trades dozens of times each day, and each of those small gains added up to something much bigger.

For others, the speed of that strategy didn’t resonate at all. They were better off doing fewer trades but aiming to capture bigger moves from each trade.

Trying to stick to a strategy that doesn’t suit you will generate a lot of frustration. And in the long run, you’ll fail to consistently make profits.

Worse still, you’ll likely churn right through your trading account and put yourself out of the game…

My Strategy

When I figured out the strategy that suited me best and put it to full effect, that’s when I finally found my edge.

And my career really started to take off.

It led to me going 20 years without a down year. And Jack Schwager featured me in his book Hedge Fund Market Wizards.

While other traders tried to capture emerging short-term trends, I found that I was far better at picking when those trends reversed. That’s called a “mean reversion” strategy.

Meaning that when that short-term trend ran out of momentum, I’d look to profit when it snapped back the other way.

There’s No Right or Wrong

For example, one of those places I look for mean reversions is within the major indexes.

Like when the S&P 500 rallies too far and becomes overstretched, I look to profit when it retraces back the other way.

But I soon was able to apply this mean-reversion strategy further…

If the S&P 500 had rallied strongly but the Dow Jones lagged behind, I’d buy the Dow in anticipation of it “catching up.”

In this case, the mean reversion refers to the relationship between two indexes.

This strategy suited me so well that I’ve used it to great success for decades. And I still use it regularly today for subscribers to my various advisory services.

For example, we used this strategy last month in my One Ticker Trader service by trading the SPDR Dow Jones Industrial Average ETF Trust (DIA).

The aim was to capture a rally in the Dow after it lagged behind the S&P 500 and the Nasdaq.

Our first trade generated a 66.9% blended gain in just six days.

And our second trade fared even better, with a 100% profit in six days.

The thing to remember is that there’s no right or wrong as to which strategy is best. Instead, it’s a case of which one gels with you best…

Find out which strategy best fits you, and your trading results will really take off.

Happy trading,

Larry Benedict
Editor, Trading With Larry Benedict