Trader Risk Profiling and Position Analysis
C. Risk seeking with respect to time of entry but risk averse with respect to price
on entry.
These participants do not require confirmation of a breakout or reversal
prior to initiating an entry. But they do mind paying a less favorable price on
entry. Therefore, should the participants anticipate an early entry prior to a
breakout or test, the filtering or preconditions for that early entry will be criti-
cal and significantly more important to these participants. The pre‐entry filter
needs to be need fairly responsive.
D. Risk averse with respect to time and price on entry.
This risk profile reflects the behavioral characteristics of the majority of
market participants. Generally speaking, for market participants who are
mostly risk averse in both time and price, it is best to elect entry filters that are
very responsive. The filter should be set to validate an entry fairly close to the
initial price penetration or test of a breakout or reversal.26.7 Collecting, Categorizing, and Organizing Technical Data
Before any serious analysis can be performed, the trader or analyst must first
gather relevant technical data and subsequently categorize and organize it in some
meaningful manner.
Assume that you were presented with a collection of charts for a certain stock.
You were also provided with some charts for the index that reflected the climate
or environment in which that stock was trading.
To collect and organize the data according to duration of outlook and
sentiment:- Sort the charts for both the stock and index into short, medium, and long
term. Short‐term charts can be easily identified as they span from weeks to
days, while medium‐term charts span from months to weeks and long‐term
charts from years to months. Some traders and analysts refer to the periodicity
or timeframe of a chart to gauge its term outlook. This can sometimes be very
misleading, as an hourly chart can easily be constructed to span over a few
months, tricking the analyst or trader into believing that it is a representation
of medium‐term market action. Regardless of the timeframe employed, it is
best to observe the actual duration that the chart spans. Also, many charts like
Point‐and‐Figure charts lack the time axis, making it sometimes quite difficult
to determine which term outlook it represents. You may need to compare a
Point‐and‐Figure chart with a few other time‐based charts in order to accu-
rately gauge whether it belongs to the short‐, medium‐, or long‐term represen-
tation of market action. - Record all the bullish and bearish indications found on each chart, according
to duration and bullish or bearish sentiment. - Arrange the information in the manner indicated in Figure 26.13.