"Personality is only ripe when a man has made the truth his own."
-- Soren Kierkegaard
"Personality is an unbroken series of successful gestures."
-- F. Scott Fitzgerald
We all know there is no such thing as a "one-size-fits-all" trading style. But this doesn't stop us from being perplexed as to why certain traders seem to have a knack for daytrading in minutes or hours, while others prefer to hold for days, weeks, months or years at a time. We'd be less puzzled if we didn't overlook how one's personality type influences the development of a trading style.
For example, some of those who learn about short-term trading become enthusiastic about it and immediately want to start trading, without ever asking whether their personality is suited for this type of trading. Another example: Some become good short-term traders but don't have the patience to hold a stock even a few weeks without undue anxiety.
Some experts believe that to be a versatile and complete trader, you need to learn the skills necessary to trade in various time frames and market conditions. Others maintain that it isn't wise to go against what fits for you just because the prevailing market may not be congruent with your trading style. They prefer to emphasize letting your personality and trading style dictate your moves, rather than market conditions.
While having the flexibility to meet the market on its own terms is desirable, it's not an easy thing to learn. Some personality types and trading styles simply don't adjust to certain markets conditions and time frames as easily as others. But for those who are able to integrate characteristics from different styles, the trading rewards may be well worth the effort.
In several articles over the next few weeks, I'll examine five different types of traders and investors and show you how specific personality types tend to favor different styles of trading.
Different Strokes for Different Folks: Trading Styles
Here's a list of some basic trading styles and the types of trading behaviors that accompany each.
Efficient, focused, attention to detail; perfectionistic, high expectations of themselves and others; competitive; anxiety-prone.
Skeptics, worriers; questions news and analysts; critical thinkers, conservative, low to moderate risk-taking; depression-prone.
Emotionally driven, follows impulses and passions more than logic; high risk taking, trades on hunches, flamboyant and extravagant.
Pleasant, social, positive attitude toward life and investing; tendency toward na¿vet¿; high need for approval; easily taken advantage of.
Angry, bitter; feels victimized in life and trading; blames others for failures and losses; difficult to get along with; psychological problems played out in their investing.
I identified these trading types by interviewing active day and position traders and long-term investors as part of the research for writing my book. I also did a literature review to see how others had classified traders. This, combined with my own analysis, led to the formulation of these styles. These types are not empirically determined -- i.e., they do not come from hard data based on giving personality inventories to traders.
Remember that these styles are not meant to be viewed in all-or-nothing terms. Some investors will be more purely one type than another. Others will find that they identify with different characteristics from two or more of the styles offered. And some may think than none of the styles mentioned fit for them.
What Shapes Trading Styles
Trading styles are partly influenced by character traits learned from childhood. While there may be a genetic component to the early forming of our character, it is largely shaped by the environment. A trading style is also influenced by our
early experiences with money and
the meanings money has held in our lives.
These early influences will make for certain preferences in style. But this doesn't mean traders aren't able to go against their natural preferences. Nor does it mean that favoring one trading style over another precludes changing your style. For some, it just may be more difficult because it means fighting your deeply rooted ways of thinking and behaving.
Why Personality Matters
It is our personality style that contributes to making some of the same kinds of trading errors again and again. The same biases, hang-ups, and judgments are often repeated, without us understanding why. Sometimes it is not something technical a trader is doing wrong but simply his own personality getting in the way.
The common error is to look everywhere -- and blame everything -- to understand where mistakes are coming from,
our personality biases. Understanding our basic style of trading as it relates to our personality is ignored or minimized. When we are more aware of how some of our trading biases relate to our personality, however, we can take these biases into consideration and compensate for them, if we choose.
Shrink Rap Trivia Contest: An autographed copy of
The Discriminating Mind: A Guide to Deepening Insight and Clarifying Outlook
will be sent to the 10th reader who emails me at firstname.lastname@example.org with the correct name of the lover being referred to by Carly Simon in her song
You're So Vain
. Who was it who was "so vain"? Only one guess per reader, please. If there are not 10 correct answers by the deadline of noon, March 23, there will be no winner. Music trivia buffs, what are you waiting for? Also, don't forget to email me your questions about trading and psychology; I'll do my best to answer them in my column.
Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 25 years, investing for the last 20 years, and actively trading online as a swing trader and long-term investor since 1996. He is the author of
The Disciplined Online Investor
recently translated into Spanish. He is pleased to receive your comments and questions for publication in his public forum columns at
email@example.com, but please remember that he is unable to provide personal counseling or psychotherapy through the mail.
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