Trading Education Skill Classification Taxonomy

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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

Educators

Trading education specialists

Content Creators

Assessment developers

AI Systems

Automated classification tools

Analysts

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

1

Read

Read the entire question carefully

2

Identify

Identify the main decision/action being tested

3

Match

Match to primary skill domain

4

Check

Check if any supportive skills are CRITICAL

5

Verify

Verify no supportive skills from same category as core

Common Question Types - Quick Classification

Question TypeCore Skill Domain
Pattern identificationTechnical Pattern Recognition
Trend analysisMarket Structure Analysis
Future price projectionsTechnical Scenario Planning
Where to place stopsTrade Risk Assessment
How much to allocatePosition Sizing Methodology
What to do with existing positionPosition Modification
Which approach for new positionStrategy Selection
Questions about emotions/biasesTrading Psychology
How options contracts behaveDerivatives Management

Skill Classification Taxonomy

The taxonomy consists of four top-level categories:

CHART & PATTERN ANALYSIS

Focus: Visual interpretation of price action and technical patterns

Basic Chart Interpretation

Elementary chart elements, candlestick types, simple trend lines

Technical Pattern Recognition

Established chart patterns (head & shoulders, triangles, flags)

Market Structure Analysis

Price action, order flow, trend phases, volume profile

Technical Indicator Application

Moving averages, oscillators (RSI, MACD), volume indicators

Multi-Timeframe Analysis

Integrating data across different timeframes, fractal structures

MARKET ANALYSIS & DECISION MAKING

Focus: Strategic trade planning and market condition assessment

Technical-Fundamental Integration

Combining economic/company data with technicals

Technical Scenario Planning

Evaluating multiple potential price outcomes

Trade Setup Identification

Recognizing statistically favorable opportunities

Strategy Selection

Choosing appropriate trading approaches

Trading Psychology

Managing emotional and cognitive aspects

RISK MANAGEMENT

Focus: Capital preservation and exposure control

Probability & Statistics

Expected value, return distributions, R-multiples

Position Sizing Methodology

Determining appropriate allocation amounts

Trade Risk Assessment

Stop placement, downside scenarios, R:R calculation

Portfolio Risk Management

Correlation analysis, diversification, exposure limits

Hedging Strategies

Options protection, inverse ETFs, paired positions

EXECUTION & POSITION MANAGEMENT

Focus: Implementing trades and managing active positions

Order Execution

Order types, entry techniques, exit planning

Position Modification

Stop adjustments, partial profits, scaling

Transaction Cost Management

Spread management, commission reduction

Performance Measurement

Win rate, average R, drawdown, Sharpe ratio

Derivatives Management

Options greeks, expiration management, spreads

Classification Workflow

1

Question Analysis

  • Read entire question including options/explanations
  • Identify what trader must fundamentally decide
  • Match core decision to most specific skill domain
  • Identify supporting skills needed
2

Core Skill Selection

  • Apply Domain Decision Trees
  • Identify highest-level decision/action required
  • Choose most specific skill domain
  • Cross-check with Question-Type Priority Map
3

Supportive Skill Selection

  • 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
4

Format Classification

  • 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.

ScenarioAction
No Supportive SkillsQuestion tests only one distinct skill domain
One Supportive SkillQuestion cannot be answered without second domain
Two Supportive SkillsOnly for truly multi-faceted questions

Domain Decision Trees

Options & Derivatives Questions

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]

Decision tree for options and derivatives classification

Chart Analysis vs. Market Structure

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]

Decision tree for chart analysis 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

Pattern vs. Structure

Naming pattern → Pattern Recognition Trend dynamics → Market Structure

Exit Decisions

When to close → Position Modification How to close → Order Execution

Options Questions

Choosing strategy → Strategy Selection Understanding greeks → Derivatives Management

Risk Questions

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
    Trading Education Skill Classification Taxonomy - Wawe Docs