My First Major Lesson: Trade to Your Personality
April 18, 2008
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John Forman - The Essentials of Trading author
I was interviewed for an upcoming podcast/internet radio thing earlier this week. I was asked what my number one piece of advice to new traders. Without hesitation I said trading to your personality. This was something I was fortunate enough to learn very early on in my trading development thanks to Market Wizards.
Jack Schwager (who I once interviewed for a newsletter) authored that book shortly after I started trading in stocks with my own money. It came out at a time when I was learning the markets and starting to find my footing as a trader. The one bit of advice that was offered up over and over again in the interviews Schwager did was to trade in a way that makes sense to you, that fits in with your personality.
There is no one personality model for the successful trader. There are aggressive intraday traders doing very well in the markets. There are sedate longer-term players making excellent returns. There are all kinds of traders with all kinds of styles of looking at the markets and trading them. The ones that are making it work are the ones that are trading in a way which meshes with their personality and values, not the ones who trade contrary to themselves.
I have traded a lot of different ways over the years, for one reason or another. I know which approach is the one that is the most consistently rewarding, and that’s the one that generally fits my more laid-back character. Thanks to my career and other things, though, I have often been in a position to focus on different styles of looking at the market. While I’ve seen some successes there, I haven’t always had as much consistent success.
There is a reason for this. Trading shouldn’t be hard. Yes, there is work involved and plenty to learn along the way, but it shouldn’t be a struggle. If it is, then that suggests a conflict somewhere. When your trading is out of line with your character, beliefs, and values, it’s going to be hard. When everything is in line, everything goes much more smoothly.
Think about that as you develop your own trading style.
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John,
I heartily agree and I’d love to see you elaborate on this. For instance, there’s an old trading aphorism which says that traders shouldn’t jump from one system to the next, but this is in direct conflict with the need to experiment with many different systems in order to find one that fits you best. Brett Steenbarger talked about finding your trading “niche” which, for me, was the single most valuable insight I’ve gained about trading. It’s much more important to try many different things to find something that ‘clicks’ with your personality. Only when you’ve found that niche do you need to worry about sticking with something through the bumps, yet virtually all trading books I’ve seen put the cart infront of the horse.
Hi John,
While I certainly agree that one should trade his or her personality, I respectfully disagree with you.
I feel that, while in real estate it’s “Location, location, location” , In trading it’s about “risk control, risk control, risk control”. An agressive short term trader or a passive long term trader can both do quite well as you know.
But if either of these types fail to exercise proper risk control then they will eventually be looking for new careers. So my number one piece of advice to new traders is to ALWAYS know your risk.
In the meantime, I thoroughly enjoy yor site and read it daily.
Lou - What exactly are you disagreeing with?
Since you seem to agree on the personality side of things, I’m guessing that it’s the fact that I put personality matching at the top of my list of things to focus on. If so, I would say that your trading personality will influence your risk management plan.
This reminds me of a coach telling people that it’s important to pick a sport that matches their personality, as someone may thrive as an ultramarathon runner but fail miserably as a football quarterback, and then someone arguing that no, what’s important is training and good nutrition.
Hi John,
I think we’re saying the same thing in different ways. I think as you say “..your trading personality will influence your risk management plan.”
I’m saying you better include that risk management plan no matter what your personality is.Because if you don’t , your results will suffer.
I think Tyro has it spot on.
Lou - You better also include a system that actually produces gains. You also better trade a timeframe you can manage. You also need to have sufficient capitalization. … and so on.
My point is that you can have every element of your system and money management and all that specifically and properly defined, but if it doesn’t match your personality and values it’s going to be for naught. The conflict it causes will inevitably lead to a breakdown somewhere.
To John and Tyro,
I stand corrected , sensei s
Lou
Great post John, I went ahead and subscribed to your feed so I can keep in touch… I think you know your stuff.
We have a heck of a conversation going over at theNetFool.com eh? Haha, don’t get to angered at my arrogance… that’s just my spin on life.