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Fear and Greed in Financial Markets: A Clinical Study of Day-Traders

GreedkillsContrary to common folk wisdom that financial traders share a certain set of personality traits, e.g., aggressiveness or extraversion, we found little correlation between measured traits and trading performance. The study finds that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific \trader personality profile”, raising the
possibility that trading skills may not necessarily be innate, and that di erent personality types may be able to perform trading functions equally well after proper instruction and practice.

Top Ten Reasons Not to Trade– and Why You Should Do It Anyway

#1 Trading creates no greater good
– like when you buy grain futures, the price skyrockets, and you make a killing! A poor farmer plants more seeds as a consequence, third world children get affordable bread, hmm, did I say you make a living?

#2 Trading makes you selfish
– and that’s why filthy rich old speculators turn to philanthropy.

#3 Staring at screens all day is not healthy
– which is true, and why slow lunch hours are perfect for physical exercise.

#4 Staring at screens all day is not good for your social skills
– which is why traders are out having fun when the market is closed. (Don’t “normal” people spend evenings in front of the TV?)

#5 The market is a casino
– where scrupulous gamblers make it easier (and more important) for sane traders to make a living. (more…)

6 Personality Traits and impact upon trading

Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control;
Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations;
Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret;
Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors;
Sensation seeking – The degree to which people seek varied and stimulating experience;
Type A behavior – The degree to which individuals are driven to achieve.  (more…)

3 Trading Personality types-Intutive ,Data Crunchers and Impulsive

Three popular trading personality types are intuitive, data crunchers, and impulsive. The data-oriented trader focuses on concrete evidence and is often very risk averse. Seeking out as much supporting data for a trading decision as possible. The trader who prefers to do extensive back-testing of a trading idea exemplifies data-cruncher type. Consider incorporating elements of data oriented trader personality into your trading style regardless of your natural inclinations. Make sure that you have adequate information (a reason) before executing a trade. Particularly important is to have and trade a detailed trading plan in which risk is minimized and entry and exit strategies are clearly specified. Most often however, the data-oriented trader may take things a little too far. Searching for “the perfect” set-up or other criteria, that just doesn’t exit in the trading world. At some point, one must accept the fact that he or she is taking a chance and no amount of data analysis can change this fact.

The intuitive trader is the opposite of the data-oriented trader. Trading decisions are based upon hunches and impressions rather than on clearly defined data. There’s a difference between being an intuitive trader who develops this style over time and one who is naturally intuitive. The experienced intuitive trader, bases decisions on data and specific market information. A seasoned trader, analyzes the data quickly and efficiently. It happens so quickly that it seems like it occurs intuitively, but it is actually based on solid information. Ideally, all traders should gain extensive experience to the point where sound decisions are made with an intuitive feel. (more…)