The market eventually reveals your trading personality type. And if you’re not careful, it can cost you.

I saw that firsthand when I started my career on the trading floor of the Chicago Board Options Exchange (CBOE) more than 40 years ago.

Traders can be greedy, stubborn, impetuous, indecisive, or bone-headed risk-takers. Inevitably, an event (or series of events) flushes them out.

Truth is… most folks can handle themselves fine when things are humming along.

But when things suddenly turn south, you can get stuck. And if you’re not careful, your tendencies can unravel all your successes.

So today, I want to show you how to avoid that kind of pain…

Natural Disposition

We can’t change our personality type.

A greedy trader will focus on how much they can make from a trade. Potential losses may not even be on their minds.

A stubborn trader will ride a small loss into a massive loser rather than admit they were wrong about a trade.

An overly cautious trader will feel paralyzed… and then kick themselves over missed opportunities.

And anyone with a gambling mentality will blow up their account. It’s just a matter of time.

But one key move will help you control your natural disposition.

Whatever your innate traits, ask yourself a basic question: What am I prepared to lose on this trade?

You should know the maximum amount you’re prepared to lose on every trade that you take.

Unless you can answer that before each trade, you’ll eventually come unstuck when your natural character traits take over your trading decisions…

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Maximum Dollar Loss

It’s nice when big profits come my way. But I’m far more concerned with controlling what happens when things go wrong.

As we’ve seen multiple times over the past couple of months, a trade can turn against you no matter how good your analysis is or how strong the setup might be.

Think of all the reversals we’ve seen amid the introduction of tariffs. If you get caught on the wrong side without a clear plan, you could suffer eye-watering losses.

Frustratingly, some trades might recover after you exit the trade. But that’s not guaranteed. So taking the hit at your planned level is still a better outcome than letting losses rip a hole right in your account.

You must have clear risk parameters. That means choosing a stop loss level at a predetermined price or percentage where you will exit a trade.

That decision can counteract many of the qualities you might find in yourself. It can give confidence to a cautious trader by clarifying the amount of risk they’re taking on. It can set some parameters for anyone who is overly inclined to place big bets. And so on.

So whatever your personality type, don’t wait until things have gone wrong before you establish an exit plan. Chances are, your natural traits will work against you.

Instead, know exactly what you’re risking on every trade. And then you need to stick to your plan!

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict

P.S. Only a couple of days are left before my chaos trading interview goes offline. Markets show no signs of calming anytime soon, so it’s more important than ever that you know the right strategy for the moment.

My chaos trades are how my Opportunistic Trader followers have made consistent gains this year despite the frequent ups and downs. In fact, it’s shaping up to potentially be one of our best years yet.

So if you’d like to check out the replay of this event, don’t wait. Go right here to watch now.