Know Your Trader Personality
Does your personality get in the way of trading profitably? Despite academic arguments about whether personality is consistent across time and across situations, and whether or not personality influences job performance, I'm sure that you can think of ways that your personality may get in the way of everyday life as well as during your trading day (or you can think of ways in which a friend or relative has a personality that interfered with his or her everyday life).
A person who is extremely shy, for example, will have trouble speaking in front of a large audience or asking an attractive person out on a date. You don't need a scientific study to convince you of this fact. But there are individual differences in terms of the extent to which personality may interfere with daily living. Some people may be shy and unassertive in some situations yet not in others, while other people may be so extremely shy and unassertive that they would rather spend their life in a cocoon. You might see that if you were a personnel manager for a department store, you may not want to put such people on the sales floor. And that's what personnel consultants often suggest. The commonsense idea is to match people's personality to an appropriate occupation. If a person has trouble interacting with people, then he or she may not be the best person to try to move merchandise. Although this is a logical argument, you may see a flaw. Some people may not prefer to interact with people, but if they put in the effort, they can learn how to make sales. In other words, people can overcome the limits of their personality if they try hard enough. In this example, high sales may also depend on the product a person is trying to sell. If the product is complex, such as electronic equipment, it may be more important to find people who have the self-control and discipline to learn about electronics. Extremely sociable people, who often lack discipline and self-control, may not be the ideal salespeople for a product requiring a complicated sales pitch.
The link between personality and job duties may not be straightforward, and when it comes to trading, it may not be necessary to have the characteristics of the ideal trader personality. A person can merely identify which elements of his or her personality get in the way of effective trading, and make a plan to work around these patterns.
Even though it is possible to work around your personality, it's not a good idea to completely ignore it. Just as Dr. Van Tharp reminds us in his Market Wizards interview, we can all think of the ideal personality type that would be conducive to trading with the proper mental edge. The ideal trader personality style consists of a combination of experience, skill, knowledge, discipline, and intuition. The problem with ideals, however, is that they sometimes exist only in our imagination, with few actual candidates who fit the bill. That said, Dr. Tharp's description of the trader who cannot easily handle stress, is overly emotional, defensive, and unable to take responsibility for his or her actions is the type of person who will have difficulty trading the markets. If you tend to behave in this way in your everyday life and have done so for years, you are probably "at-risk" for blowing out your account. Again, it doesn't mean you are doomed, but it does suggest that as a trader you must take precautions to work around your personal limitations.
The ability to handle stress and control emotions are not the only traits a trader needs for success. Consider the traits of discipline and intuition. A profitable trader must make a detailed trading plan and trade the plan, and that means following rules. If you are the kind of person who struggles with following the rules, however, you may have difficulty sticking with a trading plan.
How do you handle risk? Many people have difficulty taking risks. They prefer to seek out security and certainty, and prefer facts to abstract theories and ideas. Yet there is an intuitive side to trading that is equally important. The market only follows the rules when it does; the rest of the time it goes another way. There are an endless number of inputs and it takes an intuitive mind to piece them together to come up with a reasonable plan of action.
Perhaps no person has the ideal trader personality. At best, all we can hope for is the right blend of core personality traits. And thus, it is useful to know where you stand in terms of your personality, so you can adapt and change, and bring your trader personality closer to the ideal. It is useful to appreciate the characteristics that accentuate your trading while also recognizing the characteristics that don't. Once you identify your personal limitations, you can either develop the personality traits you need to maximize your mental edge, or devise trading methods to work around your limitations. Take an honest look at your trader personality, identify your potential problems, and develop a psychological strategy to ensure that you trade with the proper winning, mental edge.
