Hello all again!
I would like to share about my research about how to determine what type of investor you are and which profile suits you best. Why is this important? This would determine how much you would be losing & winning, adding to the confidence & assurance level of maintaining current trades & establishing new trades. Hence I felt that this topic is the leap from any Forex trading abecedarian to an experienced trader.
Based on Australia AMP trader character breakdown, I had found an investor style diagram that could explain everything about this topic as below. And I hope you would be able to spot what type of trader you are and trade with that style that you’re most comfortable with.
As you can see from above, the two extreme profiles are for a risk-averse investor who is not fond of any types of risks to his capital and a risk taking trader who is willing to trade capital risks for a higher potential reward.
Risk-averse investors usually ‘invest’ for long-term for stable income, such as Government Treasury Bonds, while risk taking traders usually ‘trade’ for short-term for high returns due to the risks incurred, such as highly leveraged Forex or Options Derivatives.
In my opinion, all markets are statistically on par on risks and rewards. This means that the myth of Forex having higher risks is actually not true. Take for example, one of the most volatile pairs in FOREX, USDJPY pair, and one of the most volatile stock, AAPL Apple Inc, in recent years:
You could see that there is no articulation in both 1 year & 5 years charts, or stock & forex charts. Thus, I could only explain the myth as due to FOREX being more leverage traded, resulting in the larger change in capital gain/loss. In addition, Forex is heavily traded with a huge volume everyday means that it is more possible for prices to fluctuate easily from a little news or rumour.
And here, I would like to end that money management is the key to success in becoming a Forex expert. This is usually learnt the hard way by most people, including me, and despite that, I still do hope new traders would learn it by hard to understand why and how money management works so significantly.
Is my analysis done right to conclude with those statements or did I miss out something? If not, what risk profile are you considered in and what will you be trading? I would love to hear from you. 🙂
Till next time,
The Independent Abecedarian