The Effects Of Personality Type On Forex Strategies
Successful traders often display the characteristics of a narcissistic personality – confidence, high self-esteem, strong decisiveness. They will also show a strong skills set, including the ability to technically analyse financial and economic data and trends. They show great leadership abilities and a strong sense of money management. However, one vital differing quality among all traders is the manner in which their personality affects their trading strategies. This is due to each individual being unique in his emotions and the reaction thereof.
In this article we will discuss two distinct personality trading strategies based on particular personality types, and how they can negatively affect trading.
The impulsive type and associated forex strategies
All traders and non-traders make decisions in a particular way; however there are common aspects to this process. The most significant of these aspects is that of time. While many in the population take time to consider all consequences, there are those who prefer to act upon the impulse of the moment. These individuals are known as the impulsive type and make decisions in an instant.
Although this can be a positive trait in particular situations which call for it, such as a threatening moment, there are many instances where previous contemplation is required. Within the forex industry these impulsive individuals are known as ‘scalpers’. The forex trading strategies they prefer to use are known as trend-following strategies. They base their judgements on the current trends and make split-second decisions on which position to trade. Online trading is incredibly useful for the scalper and, unfortunately, can act as a promoter of overtrading.
This personality oriented style often works for novices, however as the trader matures so does his need to incorporate other methods into his strategy. Unfortunately, the scalper’s impulsive tendency makes it very difficult to integrate a more deliberate and methodical pattern into his system. It is against his nature to plan ahead and, while this slowing of his behaviour may benefit him in the long-run, this difficulty to adapt can be detrimental to his current performance.
The contemplative type and associated forex strategies
The typical forex trader is one who develops a trading strategy before entering the market. He will understand that in order to profit from trading, one must have a strong plan of action based on technical analysis of current and past trends. Trading is not an impulse of the moment to this individual, it is a logical and deliberate behaviour based on prior study. This is a contemplative type.
These individuals are called ‘swing traders’ as they gravitate towards stable trades where decisions are made more slowly than the impulsive type. However, just as the impulsive type has trading difficulties, so does the contemplative type. Despite appearing prepared and presenting with a reliable trading strategy, this type may still lack the insight to trade effectively. Even prepared trading does not make allowances for personal dilemmas or internal conflicts, and it is easy to fall of course. It is at this point that one may potentially experience a trading rut.