The Personality of the Trader: How It Affects Performance Brett N. Steenbarger, Ph.D. www.brettsteenbarger.

com

A recent pilot study addresses the interesting topic of how a trader's personality affects his or her trading performance. The researchers focused on si personality traits and their impact upon trading! " Locus of control # The degree to which a trader belie$es that the ability to be successful is within his or her control% " Maximizing tendency # The degree to which indi$iduals see& optimum outcomes from their decisions, not 'ust outcomes that meet or e ceed e pectations% " Regret suscepti ility # The tendency to loo& bac& on outcomes of decisions and focus on negati$e aspects, creating regret% " !elf"monitoring # People's tendency to trac& and control their own thoughts, feelings, and beha$iors% " !ensation see#ing # The degree to which people see& $aried and stimulating e perience% " Type A eha$ior # The degree to which indi$iduals are dri$en to achie$e. The researchers set up a simulated trading e ercise with real money payouts. Because data from only () sub'ects were collected, results must be considered preliminary. * amining the personality profiles of the participants, the researchers found that the first two traits##locus of control and ma imi+ing tendency##were not related to trading performance. Among the remaining traits, three clusters or personality types emerged! ,- Relaxed% ris#"a$erse traders who a$oid regret, disli&e sensation#see&ing, and show type#B .non achie$ement oriented- beha$ior% )- Traders who were controlled ris# ta#ers! high in both self#monitoring and sensation see&ing% (- Achie$ement"dri$en traders who showed high Type#A personality traits. /f the three groups, number three performed the worst. These highly competiti$e traders were also the most impatient in their decision ma&ing, reducing their

effecti$eness. The first two groups performed similarly##no significant difference. What this suggests is that a relaxed attitude toward performance may be more helpful than a driven one! the highly achie$ement#dri$en trader may create his or her own internal noise, interfering with sound decision#ma&ing. Although this is a small study and needs to be followed up with more e tensi$e wor&, the findings are consistent with other research related to personality and trading performance. 0n my own study with Andrew 1o and Dmitry 2epin of 3.0.T., we found that highly emotional reactions to trading outcomes##positi$e "and" negati$e##are associated with worse trading performance. The highly dri$en trader may generate more positi$e and negati$e emotional e periences in his or her approach to trading, interfering with clear, calm decisions under conditions of ris& and uncertainty. This would fit with research mentioned in my Psychology of Trading boo& .p. )45-, which lin&s stimulation#see&ing to high states of emotional arousal. ./ne of the rationales for the Philip 6lass techni7ues mentioned in that boo& is the creation of internal states in which stimulation##and hence arousal##are reduced-. The conundrum is that successful traders do tend to be an aggressi$e, achie$ement# oriented lot. 8p to a certain point, that Type#A tendency wor&s for them, especially if they are able to combine self#monitoring and self#control .the personality trait of conscientiousness- with the desire to ta&e ris&s. At very high levels of aggressiveness and need-for-achievement, however, the frustrations inherent in working in a setting of high uncertainty may prove overwhelming . 0 would e pect that highly achie$ement#oriented traders who also ha$e a strong tendency toward negati$e emotional e perience .guilt, anger, depression, an iety- might e perience the worst trading outcomes of all. The interesting finding of the pilot research summari+ed abo$e is that group one##the rela ed, ris&#a$erse traders##performed as well as the conscientious ris& ta&ers. It may well be the case that clarity of mind--not personality per se--is the most important psychological determinant of good decision making and trading profitability.