Investors, whether they are experienced or beginners, may exhibit very different behaviours when trading than they do when it comes to making other buying decisions.
Understanding how you might behave when trading can help you to become more aware of potential vulnerabilities.
Different types of traders by function
A value-focused trader seeks out companies with under-valued stock, speculating on the potential for that company to perform better. A growth-centered trader is on the lookout for companies that are poised for growth. These trades may offer large returns but can be risky.
Income-focused investors are looking to preserve their capital and draw a steady income. You can begin to see how different personality types might align better with these different investment goals. Consider which of the following broad personality and behaviour types you fit into:
- The high-risk trader
High-risk traders can sometimes be characterised as impatient and highly ambitious. Their potential vulnerability is that they have a tendency to become emotional over their investments and sometimes get drawn to markets that promise high growth, before they have put adequate time into researching and understanding the risks.
- The cautious trader
A cautious trader has a bearish view of the market. They are quick to identify potential risks and can sometimes have a negative outlook. They are potentially less decisive than other types, however they will take their time to make a decision and often hedge their investments to minimise risk.
- The optimistic trader
A positive trader who believes in opportunity and will make firm and fast decisions when they see something that is of interest to them. They are willing to take risks and will likely react less than other types when the market moves downwards.
The ability to see the big picture, while identifying patterns between events can be an advantage.
What makes a good trader
There is no single personality type that guarantees success, however there are a few skills that certainly assist an individual’s ability to trade successfully. The ability to see the big picture, while identifying patterns between events, can be an advantage.
Traders should ideally be able to think logically and have strong analytical skills, as well as make decisions efficiently and be organised.