How to determine your role in the market ?
On days when the markets are in a downtrend, and it is difficult to sort through a pile of contradictory information emanating from various sources, it is especially important to listen to your own reasoning and stick with your own strategy and make your own decisions.
I think if I had relayed more on my judgment, stuck with my trading and investment strategy, I would have earned much more from the markets.
But to create your strategy, I think, one needs to understand one’s role in the market.
Who are you? Trader, investor or someone else. That is a foundation of your financial decisions?
Many people are often confused or do not understand what trading is in the short term or middle term and so on… Thus I decided to explain this too from my understanding and experience.
What are the primary investment and trading positions and how the usually differ?
Intraday trading position – 100% of deposit in stable assets (USD or stable coin). Working only with day-to-day trades. All trades are opened in the morning and closed in the evening. Followers of intraday trading style do not keep any cryptocurrencies or positions on the balance and strictly works with his risk management and stop-losses. They usually work on short timeframes like 5-15-30 minutes. Sometimes 1h. The intraday trader tries to catch fast movements of assets.
Short-term position – followers of such trading style usually open trades from 2-5 days to a few weeks. They typically try to place trades according to with the trend and try not to exceed of having more than 50% of the trading balance in the trades. More use of fundamental analysis. Such people usually work on medium timeframes like 4-10-12 hours, maybe even 1D timeframe and use 1h timeframe only for order placement. Usually, try to exit at the peak of the moment or when there is a downward movement after growth. Short-term traders try to catch part of the action or the entire movement of the trend.
Medium-term position – a person, who follows such trading style opens trades with a time horizon of 3-6 months. Tries to enter trades when assets are at the bottom and rebuys when assets go down to specific price zones. The usual strategy involves fundamental analysis of the asset and trend determination. Under such style, the trader can enter and exit one asset many times during the year. He can buy today and sell at the peak of the growth of the whole cycle in 2-3 months – then wait a month or two for the asset to fall and re-enter the asset before the next peak of growth. Usually, the deposit is 70% in active positions and 30% of funds in reserve. Can make rebalance of one asset into another. Often works with up to 20 assets. Mostly works with 4h-12h timeframes as well as 1D.
Long-term position – this is more of an investor position. Such people enter into positions from 1 to 3 years – the strategy is simple – bought and hold the asset for a longer time horizon. If there is an excellent opportunity, they purchase an additional volume of the asset. This is suitable for whales, large investors, and funds with large portfolios, however smaller investors who do not have much time, can also do it as well. Such investors usually prefer a certain basket of assets and invest only in them and do not consider other assets. Prefer fundamental analysis of asset value and control the situation with the asset on 1D, 1W and even on the monthly charts.
This overview is just an example of the most common roles in the markets. The main point here is that if understanding which role you are following and which suits you from psychological, time and financial goals perspective, allows focussing your attention and strategies and tactics that can enhance your performance in the given role and overall results. As each strategy, indicator and trading tactic only works best with its role.
As per myself, I understood, that I am following medium-term role. I like to analyze fundamental, look what is happening with the development of an asset, follow like 20-30 assets, rebalance them and usually enter positions in with a 3-6m horizon.