Personality and Trading

Louis Sykes
February 1, 2023

Every investor is different.

We have different time horizons, objectives, goals, and appetites for risk.

It's for this reason that the endeavor of trading is often a lonely one; you're forced into fine-tuning what works best for your needs.

What works for me isn't going to work for you.

This is self evidently true.

It seems to me that one of the overlooked elements of this discussion is the variability of human personality.

This is something I've been pondering as of late, so I thought I'd lay bare my potential fallacious thoughts to see if we can strive closer to some answers.

Most modern and traditional studies of psychology summarize human personality into five traits, each with its respective sub-traits:

  • Extraversion
  • Agreeableness
  • Openness to Experience
  • Neuroticism
  • Conscientiousness

One of the discoveries to come from modern psychology is that certain traits predict success in differing environments.

Disagreeable people, in general, earn more money than those who are agreeable, given their relative insistence in the negotiation process.

In other environments, such as health care, agreeableness predicts job success when working with people.

Those who are conscientious and industrious score higher on the dimension of dutiful achievement, which is a positive marker for success in a competitive enterprise.

Those who score lower on trait conscientiousness and orderliness can be more reactive and better in chaotic and emergency scenarios.

From what I've found, personality analysis can be summarized by the following: Those who score high on extroversion, agreeableness, conscientiousness, openness, while having low levels of neuroticism seem to do better at almost everything.

Broadly speaking, they tend to be more happy, successful, intelligent, creative, and popular. People who score high on those dimensions have fewer addictions and less of every mental disorder.

It seems logical to me that those who have a sense of self-awareness to identify their personality traits have an inherent advantage over those who do not.

Those who understand their personality on a granular level can more easily leverage their strengths and, perhaps more importantly, make the necessary changes to put them in a more advantageous position.

Each personality trait has its own set of advantages and disadvantages. It's for that reason that variation exists in the human population: There's a niche for each personality configuration.

Much of what drives success is the consequence of aligning yourself with the right relationships, work environments, and personal commitments that correspond to your unique personality structure.

Personality traits are one of the core drivers in our interaction and response to the world, so it'd only be foolish to think it doesn't impact our decision-making process as a trader.

I'm not sure whether there's been any work done on whether certain traits objectively predict success in the financial realm. My intuition is that there's so many variables at play here that it'd be impossible to test reliably.

In either case, a potential takeaway here is that if you're consistently changing trading styles, results will consistently be inconsistent.

Trading is a highly individual endeavor where there will always be an edge in molding your trading processes and systems to the specifics of your personality.

After all, the weakest link in any trading system is a trader whose personality is not aligned with his trading style.
 
Thanks for reading, and please let us know if you have any questions.
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