|Personality Traits Of Traders And Gamblers
|By Price Headley |
Currency , Futures , Options , Stocks
Personality Traits Of Traders And Gamblers
I first read Trading, Sex & Dying, by Juel Anderson because I was intrigued by the title. The title takes the word "Poker" and crosses it out and replaces it with the word "Trading". So right away I'm expecting this to be a book about the similarities between poker and trading. But it proves to offer much more than that.
The subtitle for Trading, Sex & Dying is "The Heart of a Gambler", and this phrase may get more directly to the book's primary contents. Anderson details the characteristics that make up 13 distinct personality types. As a poker player sitting at a table, you make your returns not so much by the cards you draw but by sizing up your opponents' strengths and weaknesses, plus their dominant playing style.
The same analogy can be used for trading. Though we don't have the luxury of reading the non-verbal cues of our opponents, traders will tend to show their style in certain stocks. Is the stock a good trending play or is it full of noise? Do breakouts hold or do they tend to reverse? Are big traders and institutions jumping into the stock, evidenced by higher volumes on rallies? Is the stock prone to volatile movements or a slow and steady climb or decline? These questions may help define the types of players who are attracted to various stocks.
One particular section on gambling early in the book hooked me with the logical extension to trading (substitute "trading" for gambling" in the quote below):
"Gambling is difficult. In some respects, it's the most difficult of all endeavors. To succeed takes enormous conviction and commitment. Most individuals don't succeed because of the inability to know themselves and/or the inability to control their own actions. In gambling, the only asset you have is yourself. ...the self-developed habits or traits that undermine the very structure you're dependent on.... In gambling, you set the guidelines and make the rules. In effect, you become God. When you're God, it's easy to change the rules. You simply say, 'Well they don't really apply to me.'"
This hit home with me, as it is so easy to avoid the self-discipline you need to win at trading. Your mind will play tricks on you if you don't have a systematic process for entry, exit and money management.
Anderson notes that "at any given time the behavior of 90 percent is working to create an advantage for 10 percent." This is reminiscent of the fact that the majority of day traders went belly up in recent years, or that you often hear statistics on most futures or options traders losing, or at least only a small minority only really making it big. I believe this is often due to the emotional reactions of most traders, which tends to cluster most individuals to sell near the lows or buy near the highs, as in the tech boom in early-2000.
The 13 dominant personality traits may be of most interest to many readers. The author particularly applies his experience in sales to the aspects of selling to each personality type. This certainly applies to poker, as the player must sell his good or bad hand to get the most out of his cards. Certainly traders may not have to worry so much about talking up their position, though some analysts and brokers have developed a reputation for this.
Several personality types that you may recognize in yourself or other traders you know include:
1) The Adventurer: Always looking for action and adventure, when at times it might be wise to wait. Adventurers need to be in the game, and are prone to overtrading. Adventurers do not fear much, but this can also lead to a lack of discipline.
2) The Aggressive: Ego is a powerful factor for Aggressives, who value winning very highly. Discipline is a strength, though Aggressives may overreact in the heat of battle. Position sizing is a likely problem, as Aggressive want to win big now, and this impatience can prove costly.
3) The Emotional: Here the strong feelings can prove to be barriers in the Emotional mind. Internal self-talk may prove to be excessively critical as Emotional feel even small situations more intensely. Emotionals may feed off the excitement or lack thereof in a market, which may cause them to jump on uptrends too late or get out of slow stocks just before they break out again.
4) The Reflective: They may get tense and nervous in a new situation. Reflectives are more at risk of not pulling the trigger due to too much introspection.
All in all, this book is a very interesting read for both traders as well as those in sales professions. The description of the 13 personality types is worth it alone. The introduction by renowned options trader David Caplan is also extensive and eye-opening. I bet you'll be glad you read this book. I know I'm glad to have added this knowledge from Trading, Sex & Dying to my understanding of trading psychology.
Price Headley is the founder and chief analyst of BigTrends.com.