Personalities & Finance

Many successful traders have stressed the importance of personality in trading. Jack Schwager, author of the Market Wizards series of interviews with top traders, dedicated an entire chapter to the subject in his The Little Book of Market Wizards, and even went so far as to say: “If you get nothing else out of reading this book than the one following principle, it will still have been a very worthwhile endeavor: Successful traders find a methodology that fits their personality.”

He also wrote that “traders must find a methodology that fits their own beliefs and talents. A sound methodology that is very successful for one trader can be a poor fit and a losing strategy for another trader.”

Over the years, in his Market Wizards series, Schwager interviewed many famous traders, such as Marty Schwartz and Paul Tudor Jones, but the one who best illustrated his point was Colm O’Shea. In Schwager’s words: “Colm O’Shea, one of the global macro managers I interviewed, lucidly expressed this concept in answer to the question of whether trading skill could be taught:”

“If I try to teach you what I do, you will fail because you are not me. If you hang around me, you will observe what I do, and you may pick up some good habits. But there are a lot of things you will want to do differently. A good friend of mine, who sat next to me for several years, is now managing lots of money at another hedge fund and doing very well. But he is not the same as me. What he learned was not to become me. He became something else. He became him.”

I could list many other quotes from famous traders who have recognised the role of personality and its importance in trading. Many traders who have managed money for any length of time have come to realise this, and very often reached this conclusion the hard way, by losing money.

However, when I describe this concept to newer traders, the responses I receive are all along the lines of: “Everyone says that and I accept it to be true, but nobody ever tells you specifically how to do it. How do you find out exactly what your personality is and what trading styles or methods suit it?”

It is a great question, and the fact that it can take successful traders many years of trial and error to discover what really works for them shows, I think, that until now there has not been a simple answer.

I will now try to give you an answer, using the MBTI test. In the previous posts, you saw that the Myers-Briggs system divides personalities into four different areas, each divided into two types.

So, let’s review the four areas again, but this time by describing different types of traders.

1) Introversion or Extraversion

An introverted trader may find it easier to develop strategies, follow their guidelines and track performance, while an extraverted trader may be more aware of external influences on the markets (be careful not to assign too much weight to these).

If you have introverted tendencies, avoid dwelling too much on your strategy, and try looking at the bigger picture of a situation. External factors can sometimes give you useful “tips” (for instance, by confirming your analysis).

If you have extraverted tendencies, try looking at strategies that do not require too much focus, and beware of everything that is external to the markets, as it might lead you to make the wrong decision.

2) Intuition or Sensing

Intuition is, as Jung maintained, “perception by the unconscious mind.” Intuition-oriented traders have a bigger picture of the situation and are able to fill the gaps when information is missing. Intuition also enables us to see what is possible, rather than just what is in front of us right now.

Sensing is all about using your senses to understand the world around you. Sensing-oriented traders experiment with new strategies by taking cues from the past, but without losing sight of the real facts.

3) Thinking or Feeling

Thinking involves logical processes, including evaluating cause and effect. Traders who are “thinking-focused” tend to weigh up the pros and cons of a trade when making a decision. Thoughts and logic can help you develop great trading methods, yet it is your feelings that lead you to press the “buy” or “sell” button on the platform.

Feeling involves value judgements and emotions. Without feeling, you cannot make judgements about the things that you value and that are important to you, as it enables you to consider what risks you are prepared to take.

Feeling-focused traders tend, however, to trust their feelings too much, leaving out the operational process and the analysis of the trade.

4) Judging or Perceiving

Judging-type traders are looking for closure: they want to evaluate information and make a decision. By contrast, perceiving-type traders prefer a more open-ended outcome.

There are definite benefits to being a judging type in trading: having a clear plan and structure, and sticking with things until they reach a conclusion, whereas perceiving-type traders may make more hasty trading decisions.

However, the perceiving trader can be more adaptable, and because the market is always changing, you need to adjust your methods as you go along if you want to stay profitable.

A word of caution: these descriptions are meant to help you reflect on your own habits, not to label you. The MBTI has not been scientifically validated as a predictor of how people trade, so treat them as food for thought rather than as rules.