Winning traders have a mental edge compared to their peers. Part of developing your mental edge is becoming aware of your personality and working with it, or around it, depending on what it is. Personality traits are people’s tendencies to behave consistently across time and across situations. It is useful to identify key traits in your personality and be aware of how they may influence your trading decisions.
There are many different characteristics that can be used to describe people’s personality, such as friendly, creative, or argumentative. It is important to remember that when it comes to determining your own personality style that it is not a “black and white” issue; there are many shades of grey. In other words, it isn’t always useful to think that people are either friendly or unfriendly.
Some people are friendly all the time, other people are unfriendly all of the time, but there are many people who are friendly some of the time, but not at other times. So when you examine your personality style as a trader, it is useful to consider that for some people, their everyday personality bleeds over into their trading life, but for other people, their trading personality is distinct from the personality they have in everyday life. So it is up to you to decide just how much your personality impacts your trading. That said, some generalizations can be made.
There are some personality traits that are especially pertinent to the profession of trading. Some traders are intuitive while others are more concrete and analytical. Many traders are risk-averse, while others are impulsive and seek out risk. Each style has its advantages and limitations. It’s useful to know which style describes you, and how accurately it describes you. Your inherent personality style may influence your trading decisions.
Three popular trading personality types are data-oriented, intuitive, and impulsive. The data-oriented trader focuses on concrete evidence and is extremely risk-averse. He or she tries to seek out as much supporting data for a trading decision as possible. The trader who prefers to do extensive backtesting of a trading idea exemplifies data-oriented type. It’s useful to incorporate elements of this trader personality type into your overall trading style regardless of your natural inclinations.
It’s vital to make sure that you have adequate information before executing a trade, and it’s particularly important to trade a detailed trading plan in which risk is minimized and entry and exit strategies are clearly specified. But the data-oriented trader may take things a little too far. He or she may search for “perfect” knowledge that just doesn’t exist in the trading world. Knowledge is always fallible and the markets only repeat themselves when they do. At some point, one must accept the fact that he or she is taking a chance and no amount of data analysis can change this fact.
The intuitive trader is the opposite of the data-oriented trader. He or she bases trading decisions on hunches and impressions rather than on clearly defined data. There’s a difference between being an intuitive trader who develops this style over time and one who is naturally intuitive. Traders who are naturally intuitive discount data-driven decisions. They aren’t used to making detailed analyses of problems and situations, and thus, tend to take unnecessary chances without sufficient justification.
The experienced intuitive trader, in stark contrast, bases decisions on data and specific market information. But, since he or she is a seasoned trader, one analyzes the data quickly and efficiently. It happens so quickly that it seems like it occurs intuitively, but it is actually based on solid information. Ideally, all traders should gain extensive experience to the point where sound decisions are made with an intuitive feel.
A third trader personality type is the impulsive trader. This is the most dangerous style. The impulsive trader allows his or her decisions to adversely influence trading decisions. Rather than looking at information logically and analytically, information is discounted completely. The impulsive trader seeks out risk and enjoys taking risky, exciting trades. Impulsive traders can often make huge profits one day and see large drawdowns the next. Your personality can have a huge influence on your trading performance. It’s useful to identify your assets and liabilities and work around your personality when it is necessary. You’ll trade more profitably in the long run.