What influence does your personality have on your trading? Dr. Kenneth Reid believes trading success depends entirely on increasing self-awareness.
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:
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.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Dr. Kenneth Reid, and DaytradingPsychology.com are separate from and not affiliated with TD Ameritrade. Their views and opinions expressed may not be reflective of those held by TD Ameritrade, Inc.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.