Understanding Market-Personality for Successful Day Trading

Have you ever noticed that different people have different personalities?

Have you ever met someone for the first time and assumed they had a different personality than they actually had when you got to know them better?

We might describe someone’s personality as Shy, Confident, Outspoken, etc.

In addition, the more time we spend with other people the better we know their individual personalities and the better we can communicate with them.

Just like human beings, the markets all have individual ‘personalities’ of which every new day trader needs to learn before they begin trading.

Market-personality can be broken into three (3) main categories:

1. Liquidity

2. Volatility

3. Trendiness



Liquidity is the degree to which a market can be bought or sold without affecting the current price. The ability to buy and sell quickly and easily makes a market very ‘liquid’, while the inability to buy and sell easily tells us the market is ‘illiquid’.

Liquid markets include the Euro, Corn, E-mini S&P, 30-Year Bonds, 10-Year Notes, Eurostoxx (FESX), and more. These markets have above-average volume traded every day and are considered highly “liquid”.

Illiquid markets include Gold, Crude Oil, Mini Russell, E-Mini Dow, E-Mini Nasdaq, Wheat, Natural Gas, Silver, the list goes on and on.

Why does liquidity matter for a day trader?

The more ‘liquid’ the market we are trading, the more likely we are to get the exact price for entry and exit, which makes our trading much more accurate and consistent. When trading the E-mini S&P we can count on getting our orders filled at the exact same price we asked for.

In addition, the more ‘liquid’ markets will move in a more consistent manner, and the ‘illiquid’ markets will move very unpredictably at times with lots of volatility.

When trading ‘illiquid’ markets we know there will be ‘slippage’ when we enter a trade because there are often not enough buyers for every seller, which means we often do not get the exact same price we wanted when we placed the order.

Beginner Note: Most new traders will trade smaller contract sizes when they begin, however, if you are trading larger size orders, above 20 contracts, you will need to pay very close attention to the liquidity of the market you are trading.


Volatility refers to the range of movement on a specific market. Volatility is the uncertainty that the market’s price will fluctuate greatly throughout the session.

A new day trader needs to be aware that the volatility of a specific market can dramatically affect their ability to profit while trading that market.

Volatility is directly affected by the amount of liquidity in a specific market, so new traders can use the volume traded to anticipate what the volatility will be.

The good and bad when it comes to volatility:

Volatility can be a killer for a trade account if you don’t know how to trade it.

When you trade a volatile market you need to take extra precaution to protect against risk. A volatile market will move in very wide ranges, which means we will need to use wider ‘stops’ while being able to take profit with wider ‘targets’.

When trading a less volatile market you can expect to see smaller moves in the market, which may fit your style of trading much better. Markets with lower volatility do not have as much risk each day to a trader, and at the same time will not yield as much reward.

Beginner Note: When you trade a volatile market you need to be prepared to use wider stops and targets. If you try to trade a less-volatile market in the same way you will see poor results. New traders need to define the market they are trading as either volatile or not and then trade accordingly.


The ‘trendiness’ of a market refers to the market’s tendency to move in one direction for an extended period of time.

When you combine the market’s liquidity with the type of traders that are trading each market you get the ‘trendiness’ of that market. Some traders are long-term, while others are short term speculators.

For example, the E-mini S&P is a “trending” market because it has high liquidity (consistency in movement) while the traders who mostly trade the E-mini S&P are long-term trend-following so the market will tend to move in one direction for a longer period of time than other markets. The Euro would be another liquid market that tends to trend more often than other markets.

On the opposite side of that coin, Crude Oil is a very popular market that is NOT a trending market at all. Crude Oil loves to move up, down, sideways, and then repeat it two more times before the closing bell. Crude Oil is a low-liquidity market that is traded mostly by short-term speculators which makes this market very range-bound, with not much ‘trendiness’.

Why do we care about trendiness?

It’s important to understand the ‘trendiness’ of the market you are trading because when you enter into a new trade you need to know if there is a high likelihood this price will continue moving in the direction of your trade.

When we trade a ‘trending’ market (Euro, E-mini S&P) we want to leave the position open for as long as possible while we try to grab as much profit from the trade as possible during the trend.

When we trade a ‘non-trending’ market (Gold, Crude Oil) know that price will whip around up and down, so we need to take our profit quickly rather than trying to hold onto a position for an extended period of time. Yes, there are trends that occur on these markets, but you will see fewer consistent moves in one direction.

Beginner Note: When you decide to trade a specific market you need to know if this market-personality likes to ‘trend’ or not because that will affect your trade-management strategy. We know to hold a ‘runner’ profit-target in trending markets, and we know to take our profit quickly in a non-trending market.

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