In past articles, much has been written on the topics of trading psychology and commonly stumbled into behavioural pitfalls, but very little has been written on the personality types of the traders themselves.
As you can imagine, free will, individualism, unique personality traits, differing techniques and methods, and scores of other mental and situational factors will ensure that some people are simply going to have more success than others.
In the following sections, we are going to be peeking at a few of these factors… and how they affect traders’ daily successes in the equity markets.
- Human Variation 101
Human nature ensures that people will —if they have a choice in the matter— seek out careers and activities that match their personalities, interests, and talents. People do this because it is seen as being the clearest path to prosperity and contentment – and perhaps even to enjoyment and fulfilment.
Yet, on the other hand, if someone enters or is pushed into a job or career that is in contradiction to their personality, interests, and talents, the opposite would occur.
A young man or woman has the desire to enter the video game development industry, but is instead forced by his or her parents or guardians to inherit and manage the family accountancy business.
You can understand exactly why the newly minted accountant would be so miserable and unmotivated, and this same type of situation could easily apply to traders – or any other type of professional, for that matter.
- The Impact of Different Types of Personality in Trading
It is unfortunate, but the very nature of the trading game —deep at its core— always contains aspects that will clash with a person’s unique personality. This means that some patterns of behaviour are unavoidable, and while some of these patterns could guide a trader on the right path, other patterns could lead to disappointment.
As an example for this article, let us study two trader archetypes: the “doer” and the “thinker”.
At their cores, each is as different as fire is to water, yet both of their traits and Techniques Are Just As Important In a Healthy Trading method and mindset.
- The Doer: Trigger-happy and Ambitious
A “doer” is someone who is at their most comfortable when they are acting and moving quickly – the swiftness and finality of their actions and decisions are more important than whether if it was even a good one. They are typically impatient and restless, and dislike being passive and idle. Their thought processes and their judgments are snappy, even if they do not actually have to consider a trade or decision, and even then, they normally do not think through all of the important details and available datum beforehand.
Many tend to be workaholics.
Such rashness could lead to anything from a few minor slip-ups to a major blunder, although they also try to fix their mistakes just as quickly as they make them. If money is lost during a blunder, the “doer” will most likely try to win it back again straight away, without a pause – this is a potential recipe for an even bigger catastrophe, as this type of recklessness may make things even worse!
- The Thinker: Careful and Watchful
On the other side of the coin, a “thinker” only makes a move after analyzing the situation in-depth, and they normally still take their sweet time deciding. Only after they weigh out both the pros and cons do they act.
Because of this, a “thinker” makes far fewer slip-ups and blunders than a “doer” does, but that is only because they do not make as many decisions as a “doer”, which can be just as bad.
They also have the need to make sure that all of their decisions are sound ones, before committing to an action.
A university professor is constantly conducting and writing up his or her research project results, making sure only to submit them to academia once they are completely accurate and solid – this results in quality trumping quantity.
In the worlds of financing and trading, however, the situation is very different – over caution might possibly reduce the amount of money that could be earnt.
- In the World of Trading
Two traders are attempting to make a deal – one of them is a picture-perfect “doer” and the other a picture-perfect “thinker”.
In theory, both of them would crash and burn:
- The “doer” would overtrade and tempt fate by undertaking too many risks. Eventually, they would lose a lot of money – because they were being too speculative.
- The “thinker” would take too long to act, ultimately earning nothing – because they were being too conservative.
Always scouting for action, the “doer” would leap straight into a trade. Even if they did make a profit from the trade, there would still be a very good chance that they would leave the trade open for too long, causing it eventually to go pear-shaped. In addition, because the equity markets move in cycles or waves, the “doer” would most likely blunder in a future trade – they would keep gambling against the market, struggling against the tide, and when the trades begin to breakdown, they would inevitably keep undertaking larger and larger risks… until everything is lost.
The “thinker”, on the other hand, would have difficulty in actually starting – it would be far easier for them to not engage in trading at all, you see.
The “thinker” may never start, but if they did and if they suffered a single loss, it would probably discourage them from ever trying again. If the “thinker” somehow does earn a profit early on, there would be a very good chance that they would hold onto it and let it run, hoping for more success… until the market becomes less favourable towards the trade. That, or they could sell out far too soon.
Think of it like this: the “doer” does too much and the “thinker” too little. As you can see and understand, being stuck in one of these extreme polar opposites means being stuck in a very, very precarious position.
- The Stable Middle Ground
As you now know, being stuck in either one of these is unacceptable and outright dangerous for a prosperous trading career; self-control to prevent a trader from sliding into either, and to breakout from already being in such a position, is key.
Most people have a natural tendency to align towards one end or the other, but both are always present, courtesy of human nature. Regardless of which end they lean closest too, the trader must develop a stable middle ground between the two, in order to be prosperous in their dealings.
A trader also has to be able to sufficiently self-analyse themselves – are they slipping into one extreme or the other, and is it stopping them from achieving a good, prosperous trade? To be able to stop and coolly, logically, and reasonably analyse the situation, even under stressful situations, is an essential skill that must be learnt.
- Personal Buffer Zone – “No Pain, No Gain!”
All people have a personal buffer zone, or “comfort zone”, that shields them from negativity such as pain and fear. Unfortunately, by staying within this zone, no learning can occur!
“No pain, no gain!”
When a situation kicks a trader out of their buffer zone, they would have no choice but to learn from the situation – and unfortunately, this learning is typically from the fallout of mistakes made.
A trader’s overcautious nature has caused them to pass up a particularly promising-looking trade. A similar trade comes along later. The trader hesitates briefly, before simply throwing caution to the wind to make the trade – despite their fear of failure and any possible negative outcomes.
However, this scenario assumes that the worries and fears are from the trader’s personality, and not induced because of the market’s current state.
There are few-to-no people in the world that have such a natural talent in trading that they can just keep frequently discovering and reaping many prosperous trades. Mistakes are common, and they are an inevitable part of life’s journey.
With people leaning towards either being too conservative or too speculative, a balance between the two is the key for prosperity, and to help discover what is effective to use on the market.
- What Doesn’t Kill You Makes You Stronger!
Unfortunately for those who would like to remain safe in their comfort/buffer zone, trading almost always occurs beyond it – those “doers” and “thinkers” whom adapt to deal with those worries and negative feelings usually adapt and thrive.
Those traders who cannot or will not adapt their personality traits, techniques, and/or their methods to the reality of the trading game will simply fail.
Trading, like any other intense activity, can be intensely stressful, putting a significant strain on a trader’s emotions – this can lead to events where significant amounts of cash are either gained or lost.
A healthy person’s personality is solid and stable, and traders need to work on them so that they can develop the best possible balance between their fundamental natures and the amalgamation of attributes that would benefit them.