# Trading Education Skill Classification Taxonomy Standardized framework for classifying trading education questions according to specific skills they assess This document provides a standardized framework for classifying trading education questions according to the specific skills they assess, ensuring consistent categorization across educational content, assessments, and learning pathways. ## Executive Summary This taxonomy enables precise classification of trading questions with: - **One core skill domain** representing the primary decision/action required - **Up to two supportive skill domains** if they are critical to answering the question ### Primary Users Trading education specialists Assessment developers Automated classification tools Skill gap assessors ## Quick Reference Guide Critical Rules to Remember: - Each question receives ONE core skill domain - Add up to TWO supportive skill domains ONLY if critical - NEVER select two supportive skills from the same top-level category - NEVER select a supportive skill from the same category as the core skill ### Simple Classification Flowchart Read the entire question carefully Identify the main decision/action being tested Match to primary skill domain Check if any supportive skills are CRITICAL Verify no supportive skills from same category as core ### Common Question Types - Quick Classification | Question Type | Core Skill Domain | |--------------|-------------------| | Pattern identification | Technical Pattern Recognition | | Trend analysis | Market Structure Analysis | | Future price projections | Technical Scenario Planning | | Where to place stops | Trade Risk Assessment | | How much to allocate | Position Sizing Methodology | | What to do with existing position | Position Modification | | Which approach for new position | Strategy Selection | | Questions about emotions/biases | Trading Psychology | | How options contracts behave | Derivatives Management | ## Skill Classification Taxonomy The taxonomy consists of four top-level categories: ### CHART & PATTERN ANALYSIS Focus: Visual interpretation of price action and technical patterns Elementary chart elements, candlestick types, simple trend lines Established chart patterns (head & shoulders, triangles, flags) Price action, order flow, trend phases, volume profile Moving averages, oscillators (RSI, MACD), volume indicators Integrating data across different timeframes, fractal structures ### MARKET ANALYSIS & DECISION MAKING Focus: Strategic trade planning and market condition assessment Combining economic/company data with technicals Evaluating multiple potential price outcomes Recognizing statistically favorable opportunities Choosing appropriate trading approaches Managing emotional and cognitive aspects ### RISK MANAGEMENT Focus: Capital preservation and exposure control Expected value, return distributions, R-multiples Determining appropriate allocation amounts Stop placement, downside scenarios, R:R calculation Correlation analysis, diversification, exposure limits Options protection, inverse ETFs, paired positions ### EXECUTION & POSITION MANAGEMENT Focus: Implementing trades and managing active positions Order types, entry techniques, exit planning Stop adjustments, partial profits, scaling Spread management, commission reduction Win rate, average R, drawdown, Sharpe ratio Options greeks, expiration management, spreads ## Classification Workflow - Read entire question including options/explanations - Identify what trader must fundamentally decide - Match core decision to most specific skill domain - Identify supporting skills needed - Apply Domain Decision Trees - Identify highest-level decision/action required - Choose most specific skill domain - Cross-check with Question-Type Priority Map - Determine if supportive skills truly needed - Select up to two supportive domains - NEVER select from same top-level category as core - Apply domain-specific tie-breakers - Use Required Format - Include 2-3 sentence reasoning for core skill - Add brief explanations for supportive skills ### Threshold for Supportive Skills Only add supportive skills when they are truly critical to answering the question correctly. Passing mentions or minor aspects should not be included as supportive skills. | Scenario | Action | |----------|--------| | **No Supportive Skills** | Question tests only one distinct skill domain | | **One Supportive Skill** | Question cannot be answered without second domain | | **Two Supportive Skills** | Only for truly multi-faceted questions | ## Domain Decision Trees ### Options & Derivatives Questions ```mermaid graph TD A[START] --> B{Strategy Selection?} B -->|YES| C{Match to timeframe/conditions?} C -->|YES| D[Strategy Selection] C -->|NO| E{Risk mitigation focus?} E -->|YES| F[Trade Risk Assessment] B -->|NO| G{How options behave?} G -->|YES| H[Derivatives Management] ``` ### Chart Analysis vs. Market Structure ```mermaid graph TD A[START] --> B{Named pattern?} B -->|YES| C[Technical Pattern Recognition] B -->|NO| D{Trend dynamics/structure?} D -->|YES| E[Market Structure Analysis] D -->|NO| F[Standard classification] ``` ## Question-Type Decision Rules ### Tie-Breaking Rules When multiple skills seem equally applicable: 1. Identify the Main Question Verb 2. Check for Options or Derivatives Focus 3. Use Cross-Category Disputes rules 4. When in doubt, determine which domain cannot be solved without ### Common Ambiguities Naming pattern → Pattern Recognition Trend dynamics → Market Structure When to close → Position Modification How to close → Order Execution Choosing strategy → Strategy Selection Understanding greeks → Derivatives Management How much to allocate → Position Sizing Where to place stops → Trade Risk Assessment ### Trading Psychology Classification A question should ONLY be classified with Trading Psychology when it EXPLICITLY addresses: - Cognitive biases (confirmation bias, recency bias, etc.) - Emotional responses (fear, greed, hope) - Psychological aspects of trading discipline - Explicit references to trader mindset or mental state ## Example Classifications ### Simple Pattern Recognition **Question:** "What chart pattern is forming on the daily AAPL chart?" ``` CORE SKILL: CHART & PATTERN ANALYSIS > Technical Pattern Recognition REASONING: The question specifically asks to identify a chart pattern. SUPPORTIVE SKILLS: None required for this straightforward question. ``` ### Position Sizing with Risk **Question:** "How do you calculate position size if you risk 1% of $10,000 on a trade with a $2 stop?" ``` CORE SKILL: RISK MANAGEMENT > Position Sizing Methodology REASONING: The primary focus is determining appropriate allocation. SUPPORTIVE SKILLS: None required for this straightforward calculation. ``` ### Options Strategy Selection **Question:** "Which option strategy best fits a bullish bias over two weeks with elevated IV?" ``` CORE SKILL: MARKET ANALYSIS & DECISION MAKING > Strategy Selection REASONING: Primary focus is selecting appropriate strategy for conditions. SUPPORTIVE SKILL: EXECUTION & POSITION MANAGEMENT > Derivatives Management REASONING: Understanding how strategies behave with IV is critical. ``` ### Complex Multi-Domain Question **Question:** "Looking at this triangle pattern, where would you place your stop to maintain a 2:1 R:R ratio?" ``` CORE SKILL: RISK MANAGEMENT > Trade Risk Assessment REASONING: Central question requires determining stop placement for specific R:R. SUPPORTIVE SKILL: CHART & PATTERN ANALYSIS > Technical Pattern Recognition REASONING: Identifying the triangle pattern is prerequisite for risk assessment. ``` ## Required Classification Format Follow one of these three formats exactly based on the number of supportive skills: ### Format 1: No Supportive Skills ``` CORE SKILL: [CATEGORY > Specific Skill Domain] REASONING: [2-3 sentences explaining why this is the core skill] SUPPORTIVE SKILLS: None required for this straightforward question. ``` ### Format 2: One Supportive Skill ``` CORE SKILL: [CATEGORY > Specific Skill Domain] REASONING: [2-3 sentences explaining why this is the core skill] SUPPORTIVE SKILL: [CATEGORY > Specific Skill Domain] REASONING: [1-2 sentences explaining why this is supportive] ``` ### Format 3: Two Supportive Skills ``` CORE SKILL: [CATEGORY > Specific Skill Domain] REASONING: [2-3 sentences explaining why this is the core skill] SUPPORTIVE SKILL: [CATEGORY > Specific Skill Domain] REASONING: [1-2 sentences explaining why this is supportive] ADDITIONAL SUPPORTIVE SKILL: [CATEGORY > Specific Skill Domain] REASONING: [1-2 sentences explaining why this is additional supportive] ``` Critical Rules: - Use no more than two supportive skills - Never select two supportive skills from same top-level category - Never select supportive skill from same category as core skill - Trend analysis belongs to Market Structure Analysis ## Common Classification Errors ### Error 1: Wrong Core Skill ❌ **Incorrect:** ``` Question: "What chart pattern do you see?" CORE: Technical Scenario Planning ``` ✅ **Correct:** ``` CORE: Technical Pattern Recognition ``` ### Error 2: Same Category Support ❌ **Incorrect:** ``` CORE: Market Structure Analysis SUPPORTIVE: Technical Indicator Application (same category!) ``` ✅ **Correct:** ``` CORE: Market Structure Analysis SUPPORTIVE: None or from different category ``` ### Error 3: Minor Mentions as Support ❌ **Incorrect:** ``` Question: "Which pattern is this? Consider a stop if you'd like." SUPPORTIVE: Trade Risk Assessment (minor mention!) ``` ✅ **Correct:** ``` SUPPORTIVE: None required ```