Trading, the different Types of Traders. Which one are you?

In trading, about 80% of those who enter the market, professional or amateur, lose money on transactions. These are on average the data that brokers release to the public about the number of losing and winning traders. Is there anything to be discouraged about? Or is the statistic soiled by many operators who start and leave right away?

Trading, many lose and few gain

This is sadly the ruthless reality of this world. Many may think that these numbers are mainly given by the fact that those who start lose money, usually a lot. After this initial loss there is the risk that his story as a trader could end there, in other cases there is instead the possibility of being able to continue, initially losing money even in that case. In the first phase, losing money is very likely, almost a certainty, therefore it is advisable to start with a small amount compared to your capital.
In this 80% of traders who lose, there are therefore those who start out, some for fun and some with a real desire to do things right, and those who have already passed this initial step and are understanding the mechanisms of trading, the importance of risk management and money management. I would like to remind you that losing in trading, especially in the initial stages, is important and fundamental for understanding both the risk profile of those who trade and the novice’s approach to this profession.

The Newbie Trader

The neophyte trader can have various profiles which, however, are united by the "experimentation" factor. Trading is a job which, even if you have studied all possible theoretical notions, must be tested in the field, directly on the market. The novice trader does just that, experiment. Like children have to experiment with their toy, by touching and sometimes breaking what they have in their hands, the neophyte trader plays, experiments and inevitably "breaks" his account. In practice, that of loss is an inevitable process, unless you are followed by a good guide, a figure who makes you limit the damage and who educates the trader as a parent educates his child.

Usually, the neophyte trader is attracted by the possibility of generating wealth in a short time, with a bettor’s approach or better still as a lottery player: rich in a short time, obviously thanks to a stroke of luck, in the case of trading with the right operation (“the right tip”). The neophyte trader is sometimes also a dreamer, he hopes to earn in a short time, with little effort and with sometimes ridiculous capital. His cognitive distortion about his abilities is given by the adrenaline and endorphins that a series of right operations can give him, and he immediately feels competent, a perfect example of the Dunning Kruger Effect. For the uninitiated, this cognitive distortion is given by the overestimation of one’s abilities given precisely by one’s lack of experience. In essence, it is believing oneself to be an expert when one is not at all. Those who manage to go beyond these first inevitable mishaps move on to the next step, that of the amateur trader.

The amateur trader

The amateur trader is that neophyte who has passed the first phase which served as a "sieve", here we see who really wants to move forward and who wants to learn seriously. Between novice and amateur there is a real abyss in terms of experience, i.e. the amateur trader knows very well how much one can get hurt with this activity and above all, begins to see trading as a real activity, a real job and no longer a pastime or even worse as a hobby. I emphasize the fact that if you see trading as a hobby and as a pastime, you will get the results of a pastime, i.e. you don’t make money. You only earn with work, when you see what you do as work.

The example of the musician is fitting, that is, one can see music as a passion and as a pastime, but being a musician for work is completely different, one needs a different approach and a different active "work". The amateur trader does just that, he goes from seeing trading as something that intrigued him to seeing it as an activity, like a job. This is one of the main differences between neophyte and amateur. The amateur is therefore still in an experimentation phase, he doesn’t earn but his approach is the right one. The next step, in my opinion, is that of the "intermediate" trader.

The “intermediate” trader

Many could think that after the amateur trader there is the professional trader. What is this intermediate trader? In my experience, also knowing other traders, I have seen that everyone goes through an intermediate stage before becoming professional traders. If the novice trader is comparable to a 1-3 year old child and the amateur trader to an school-going child elementary and middle school, the intermediate trader is a real teenager.

It is not possible to understand if he is an amateur trader or a professional trader. In practice, his profile sees good experience on the markets, both in terms of traded instruments and in terms of technical knowledge, all accompanied by an already developed strategy as regards money management and risk management. In practice, the intermediate trader has all the tools to become a professional, he clearly feels that he is about to make it but it is not the time yet. I assure you that many have gone through this step.

The block is more of psychological nature, mainly related to ego. The great work done previously and the sense of being successful in this job can "pump" the ego of these traders who, perhaps after a profitable period, make beginner’s mistakes, almost inexplicably. This phase has a very variable duration and depends a lot on the trader’s psychological approach. My invitation to those who find themselves in this situation is to absolutely not give up and to try to work more on their personality and above all to be much more honest with themselves.

The Importance of Training

Throughout this evolution process, from novice trader to professional, passing through the intermediate steps, there is the possibility of making different and protracted mistakes over time. In this activity, training is essential, especially for beginners who usually have a bettor’s approach and who, seeing that it is a real job, could understand the true potential of trading and how it could effectively change their perception of the financial markets and of how the economic machine moves in general, also improving many psychological aspects, as for example sport does with discipline and constancy.

Original article published on Money.it Italy 2022-07-05 08:57:00.
Original title: Trading, i diversi tipi di traders