As Lead Content Strategist, John diligently searches for ways to connect with day traders and provides training and education to those in this space.
This is a fun question, isn’t it. What’s your trading personality? Are you a home run hitter? Are you a snatch-and-grab scalper? Perhaps you’re too laid back for the fast pace of low floats or trading the open? Maybe you’re contrarian, pessimistic, optimistic? Lone wolf or life of the party on Discord?
All these things are just a few examples of what your personality might look like in trading.
Table of Contents
Why Trading Personality Matters
The first question you should think about is why this even matters. The importance of it is rooted in your own mental and emotional wellbeing.
According to Dr. Brett Steenbarger Ph.D., we want our actions to be aligned with our ideal self. In other words, how we imagine ourselves should line up with the reality we act out. It’s where motivation typically comes from.
For example, if we are working at a job that doesn’t align with what we consider our ideal self, we might suffer negative emotion or lack of motivation.
Trading is no different.
The issue is that trading education is the wild west. It’s a bit of a two-edged sword. You have plenty of free resources nowadays, and access to many successful traders. However, choosing a methodology that fits with your personality can be altogether confusing.
Nonetheless, discovering what fits with your “ideal self” may benefit you in the long run.
The Psychology Behind Trading Personality
Your trading personality may actually be a deeper subject than simply creating an avatar of who you think you should be. Dr. Steenbarger has done studies on this very thing.
In one study on trading performance and personality traits, Steenbarger found correlations with his own research. The reference study found that two groups of personality traits do better than others. Those traits were:
“1) Relaxed, risk-averse traders who avoid regret, dislike sensation-seeking, and show type-B (non achievement oriented) behavior;
2) Traders who were controlled risk takers: high in both self-monitoring and sensation seeking;”
What Steenbarger found was that Type A, competitive personalities were the least successful at trading. He surmised that a “relaxed personality” might be more productive in trading than those who are more driven.
Ultimately, what may matter the most is simply having clarity of mind while trading, regardless of your personality.
It may well be the case that clarity of mind–not personality per se–is the most important psychological determinant of good decision making and trading profitability.
Dr. Brett Steenbarger Ph.D.
We’ve written before on trading psychology if you’re interested in that read. That being said, let’s pick apart some of the more prominent personality characteristics, and what they may mean for you.
1. The Regretful Trader
Let’s be honest, do you beat yourself up when you make mistakes? If so, you may be susceptible to this.
It’s important for you to feel a sense of positivity and accomplishment. As humans we need this. If your trading is getting you down, there a few things you might consider.
Perhaps your regretfulness is a byproduct of other limiting beliefs from your past. There are ways to work on this with trained counselors and performance coaches. We discuss these in our podcast with Créde Sheehy-Kelly.
It is important to have proper expectations of your trading education journey as a whole. Be sure to check out our discussion on this topic here.
Consider spending more time in a simulator until you’ve found that your equity curve for a given strategy builds your confidence rather than your regrets.
2. The Self-Aware Trading Personality
Are you the type of trader who is always thinking about what you’re thinking about? Psychologists call it “self-monitoring.” This can actually be a very good thing for traders.
When you are self-aware, you are typically in control of your emotions. Perhaps you’re able to overcome impulses by being conscious of your own self-sabotage. Of course, no one is fool proof or immune to the pulls of the flesh, but at least you’re on the right track.
If you lack this trait, it may be beneficial to start a mindset journal while you’re trading. Sounds cheesy, but it might bring awareness to thoughts and actions you often overlook. Forcing yourself to document your emotions and audit them at the end of day can do wonders for your self-monitoring.
Ultimately, you’ll want to set goals that are tangible for yourself. If you find that you struggle with anger, revenge trading, or any other bad habit, take note of it. Then create a process-oriented task list of ways to mitigate the known habit. Check it each day.
Maybe this includes breaks, yoga, walks. Anything to shift your focus from the moment to a more introspective observation will help.
3. The Thrill Seeker
Is this your trading personality? Are you the guy that does double gainers off the diving board? Bungee jumping? Adrenaline junkie?
Even if you don’t take thrill seeking to those extremes, you might be seeking the thrill of trading because you don’t get it elsewhere. Think about it terms of your heart rate when you trade. How many times have you put on a position and your heart races?
This really shouldn’t be the case if you’re being disciplined. It also shouldn’t happen if you seen the same trade a thousand times before. You already know the potential outcomes.
Granted, there may be those times that you want to go heavy in a trade that is picture perfect. However, if you’re managing risk and systematically scaling up your account, you’ll find that you only risk a certain amount every trade. When you define these parameters, your trading becomes systematic and boring.
We’ve discussed this concept with recent traders in regard to Kelly Criteria and position sizing. If all you want is fast profits, be careful. The best traders manage their emotions through position sizing, not thrill seeking.
4. The Calm, Risk-Averse Trader
According to Steenbarger, “The interesting finding of the pilot research summarized above is that group one–the relaxed, risk-averse traders–performed as well as the conscientious risk takers.”
We like to think of this like the trader with a strong poker face. You know your probabilities for success, you know the potential outcomes, and you aren’t moved by wins or losses. Trading has become a game of probabilities to you.
Knowing this is true, it allows you to relax. Once you’ve discovered your edge in the markets, it becomes a habitual experience. Sure, you’re in the market to make money, but the intangibles of profit and loss don’t bother you. You’re more focused on simply trading the process.
To that end, you’re prone to cut your losses quickly and use incremental sizing. You’re risk averse. Usually this keeps you in the game longer.
Other Trading Personality Considerations
We’ve covered some important psychological traits of traders, but there are certainly other aspects to your personality to consider. The great thing about trading is that it usually causes all of your little personality flaws to surface.
Here is just a short list of things trading will bring out of you:
It really runs the gamut, the type of emotions you will experience in trading. How you handle them will all depend on your own personality. Are you disciplined outside of trading? You’ll likely be disciplined in trading.
All of these things you should consider as you take the time to discover what works best for you. Don’t depend on anyone else’s style. They may have a different personality than you.
Find what fits. Monitor yourself. Seek your ideal self in all that you do.