The following article was printed in the Technical Analysis of Stocks and Commodity Magazine, June 2003 issue page 46.

TRADING PSYCHOLOGY

• Preserver — A preserver tends to develop expertise in one specific area and focus his or her interest in a narrow field. As traders, when preservers learn a new system, they tend to stay with it; they also prefer to work with tried and proven indicators. In their trading, preservers probably have few indicators on their screens. Once these individuals have rooted, it is difficult for them to move from one familiar system or area of knowledge to another. They tend to trade one or just a few markets, and to get stuck on a few particular investment stocks or sectors. Preservers have clear habits and patterns and for the most part appear to their friends to be predictable.

• Moderate — Moderates tend to have the best of both worlds. They like to stick with their old, proven way of doing things, but if somewhere along the way they come up with a new idea or someone convinces them that a new system will work, they will give it a try. As traders, moderates tend to maximize a system. They do their best to trade a system to its full potential, and they give it enough time to work before they make any decisions about it. They will look at a given system from different angles until they ultimately find out if it really is worth using any further. However, if they are convinced that a system is not working or that another trading system is better, moderates do not mind shifting gears and learning a totally new system.
 

• Flexible — A flexible person seems to be less ambitious and less determined, and he or she may appear to be lazy, absent-minded, and careless. As a trader, if you are flexible, you might have a hard time committing to a trading system or methodology. You may need to light a fire under yourself to get motivated.

• Balanced — As is so often the case in life, a moderate view works the best, and such is the case for the balanced individual. These people tend to be organized and follow the rules, but they also find time to relax and go out of bounds once in a while. As traders, balanced personalities sometimes follow the chosen system and at other times abandon it. For this type of person, coaching as a part of a developmental strategy would work well for improving trading performance.
 

• Introvert — This individual prefers to work in a solitary environment. He or she prefers to tackle projects alone, and may appear to others as cold and reserved. Introverts prefer writing e-mails and participating in newsgroups as opposed to talking in person with a group of people. As traders, introverts tend to work alone from home or from a private office. It is important for a trader to identify his or her E score in order to find a suitable environment for optimum trading performance. Regardless of the type of trader you are, you need to make sure your trading environment reflects your E score.

• Ambivert — Ambiverts have a high degree of flexibility with regard to working environments; they find that working with other people can be just as satisfying as working alone, and their preference to work at home alone or to work in the office with others can change from day to day.

• Extrovert — An extrovert derives energy from the outside world. He or she likes to be around people and to mingle, talk, play, and interact with them. This type of person prefers to participate in meetings rather than talk on the phone or send e-mail. If you are a trader with a high score on the E domain, you should arrange to work with other people. If you do work at home, have your TV or radio on in the background. If you are unable to leave your trading room, make sure you have enough stimuli. You might light a scented candle in your room, or you might want to paint your room lively, bright colors. You can also change your screen colors to brighter, more pleasant colors so they can help keep you focused on your trading. In some instances, if an extrovert is not stimulated in his or her environment, he or she may try to compensate by overtrading to create that needed energy.

• Challenger — Challengers tend to be cynical and skeptical, and may question authority. As traders, challengers seem to see the market and floor traders as enemies and then try to beat them. Challengers initially blame the floor traders for any losses they incur; they may also suspect that forces are conspiring against them. When challengers sign up for a trading course, they demand proof of the system's performance; interestingly, however, when the proof is presented, they do not question it. In some cases, even though they claim to be convinced of the profitability of a trading system, with every trade they make, challengers will question the system's validity, and so they have a hard time following its recommendations. The end result is hefty losses and a dismal trading performance that only seems to confirm the challenger’s initial skepticism. For this type of trader it may be helpful to implement a complementary strategy [such as?].

• Negotiator — Negotiators can be both competitive and cooperative, depending on the situation. They can be part of a team and submissive to authority, but at times they can be independent and question authority. As traders, negotiators tend to accept at face value the system they have purchased or the methodology they have learned; however, at times they may question its validity. Negotiators would do best in a coaching strategy as part of an overall developmental approach.

• Adapter — Adapters tend to be forgiving, trusting, kind, sympathetic, and warm; friends of the adapter feel comfortable talking with him or her. As students, adapters have great respect for their teachers and accept instructions easily; they tend to be the favorites on any team. When adapters sign up for a trading course, they follow the course materials more easily because they trust the content and the teacher. Adapters are excellent candidates for almost any type of trading system; they do their best and give their full attention to learning the system's functions. One drawback to this type of person is that he or she tends to ask few questions. This can create functional problems when the trader applies the newly learned system, because he or she did not question its practical side.

• Resilient — An individual with a low score on the N domain (1–45) tends to react to his or her environment with a calm and even temperament. A trader who is low in neuroticism usually has a calm manner in dealing with losses. He or she also takes time before entering a trade and tends to be less worrisome and anxious.

• Responsive — An individual with a mid-level score on the N domain (46–55) tends to be calm and relaxed most of the time; however, in some stressful situations he or she may react with anger or hostility. The threshold for this individual’s anger is lower than that of a resilient but higher than that of a reactive (see next section). A responsive individual is a rational investor. He or she looks at the losses in his or her account in the light of overall performance. When losses get out of hand, a responsive tends to put a hold on the situation and figure out the root cause; typically, he or she would prefer to take a break from the heat of trading.

• Reactive — If a person has a high score on the N domain (56–100), he or she is living on the edge. Many events, one after the other, trigger this person’s anger, anxiety, worry, hostility, and depression; this type of person feels as if external factors were controlling him or her. Individuals with a high N score tend to have a lower level of self-control and to be more anxious about decisions they make, and they feel less secure or comfortable with their lives. These individuals tend to relinquish control of their lives to outside factors; luck, chance, faith, a bad economy, and a bad social system all wreak havoc. When discussing losing trades, reactives blame brokers and floor traders first. These individuals are reluctant to take personal responsibility for their actions.

If your N score is very high, it might be a serious obstacle to your trading performance, so you may want to consider a complementary strategy. For example, transfer the task of trading to a partner or a broker. If you are a discretionary system trader, you may need to use some type of indicator that will help reduce the uncertainty and stress in the decisionmaking process.

Ned Gandevani is a professional trader and developer of the Winning Edge S&P Methodology, which is based on chaos theory. He is the author of How To Become A Successful Trader, and has conducted trading psychology seminars in the United States and Europe. He may be reached at www.winningedgesystem.com.

Gandevani, Ned [2002]. How To Become A Successful Trader: The Trading Personality Profile: Your Key To Maximizing Your Profit With Any System, Writers Club Press.

 

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