Chew over this gem from the 1950s, perhaps poignant as 2016 marked the worst 10-day start to a trading year, ever.
If you don't know who you are, the stock market is an expensive place to find out. —George Goodman (1959)
Sometimes in trading you can be your own worst enemy. At times the difference between a profitable trade and a loss may not be the methodology, but it could simply come down to your personality type and emotions. After all, entering and exiting trades brings up challenges beyond just market analysis.
"Traders over-focus on the market and under-focus on themselves,” argues Dr. Kenneth Reid, a trading coach at DaytradingPsychology.com. “Long-term success in trading depends entirely on increasing self-awareness.”
Dr. Reid completed his undergraduate work in engineering at Columbia University and has a PhD in clinical psychology. He works with private traders, banks, and hedge funds and also actively trades for his own account. When he first started coaching traders in 2001, he found the Myers-Briggs model and corporate models like DISC mostly irrelevant to trading.
In the summer of 2009 while he was leading a trading room with several clients, he observed how each perceived risk and opportunity differently. Reid's analysis of the group's trading approaches led him to develop his AWARE personality profile, which details five different trading personality types:
- Agrarian (Farmer)
We sat down with Dr. Reid to learn more.
TT: How important is trading personality type when it comes to success in trading?
Reid: Our trader personality is responsible for creating the problems we try to solve by other means. But we can’t solve a trading problem with the same level of unconscious thinking that created it.
TT: What is the AWARE model? Tell us about the five personality types.
The first A in the acronym stands for Agrarian (Farmer). Agrarians are naturally patient and want a simple method that they can execute repeatedly. They are great trend followers and exemplify consistency. However, because they value hard work and a fair return for effort, they can become extremely discouraged with the randomness of results in financial markets.
The W stands for Warrior. The pit traders in Chicago and New York typify this archetype, and many of the traders profiled in the Market Wizards series are Warriors. They are incredibly courageous and are able to see opportunity where others see only risk. That said, Warriors are also the colorful characters who double down, revenge trade, and blow up a few accounts before they “mature.”
The second A stands for Artist. Artists are flexible, adaptive, and creative. Where others see randomness, Artists find patterns to exploit. The risk for Artists is that if they improvise too much and trade intuitively, they get nowhere.
R stands for Realist. These folks approach trading pragmatically, as a business, and calculate their return on investment (ROI) on a daily basis. They don’t care about being right, they don’t care why a method works; they just want to make money. Realists, however, can fall into depression during periods of drawdown.
Finally, E stands for Engineer. These traders have supremely logical minds, love spreadsheets, and tend to be perfectionists. They bring a methodical accuracy to their trading, but they sometimes struggle to shift into a probabilistic mindset, which seems like fuzzy thinking to them. Therefore, they sometimes can’t see the forest for the trees.
TT: How can these traits impact success and failure in trading?
Reid: Although every trader has character traits from all five trader archetypes, they are usually somewhat imbalanced and unconscious. When starting out, we tend to automatically rely on our strong suit, but that means we have the Achilles’ heel of that particular archetype, as well. As traders mature they wake up to themselves, and then differentiate and incorporate under-represented traits. This takes years on your own, but with a conscious effort and the right guidance, one can accomplish this in a matter of months.
TT: How can traders figure out what type they are?
Reid: Interested traders can take my AWARE Profile for free here.
Join Us at the Orlando MoneyShow
TD Ameritrade will be Live at the Orlando MoneyShow March 2-5. Be sure to stop by booth #301 and visit with our trading experts!