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As I’ve been working on the new book, one of the themes that keeps coming up is all the different ways that people make money in the markets. We often think of some of the big, basic divisions; we might say “I’m a fundamental investor” or “I trade mean reversion”, but it really goes beyond that.

In reality, many of these divisions are not as black and white as we think. In fact, most of them are shades of grey. Even the hardcore systematic traders are not purely systematic: you still made a decision as to what kind of system to trade, what kind of risk was appropriate, and you’ll make a decision as to when to turn the system off when it stops working. Nearly everything we do and think in the market is some complex mixture of factors and things.

When you sit down and think about it, a trader’s style can be expressed as where they fall along some spectra. Some of these scales reflect psychological factors (personality traits), but some of them are more “mechanical” in relating to the market approach.

Here’s a short list that came to mind as I was writing this post. What are some others? How might we best express these factors and understand how to best match traders to markets, timeframes, and approaches. (Comments to this post are welcome. I’ll be monitoring them and will participate in discussion there!)

  • Fundamental => technical
  • Value => growth
  • Mean reversion => momentum
  • Short term (seconds) => long term (years)
  • Systematic => discretionary
  • Visual => quantitative
  • Focus on entry => focus on exit
  • Capital preservation => high returns
  • Stability => volatility
  • Follower => contrarian
  • Seeking excitement => seeking stability
  • Loss-adverse => loss-accepting
  • Hitting singles => hitting homeruns
  • High probability => high R:R ratio
  • Internally-motivated => Outside affirmation matters