This article was written by Lee Sandford who is a trader, mentor and founder of Trading College, teaching people how to trade on various markets. After 18 years as a professional footballer, Lee has been mentoring people since 2008 and his particular passion is how your own personality can influence your trading style and make you more successful. Lee trades live in front of his students every week and recently had 93 out of 100 profitable trades.
It goes without saying that making more money is something that all traders want to achieve, so any tool that can give you an advantage over the markets should be used. Personality profiling is one such tool and by better understanding how you behave in certain trading situations can make you more successful.
Personality profiling looks at each person as an individual and explores ways to better understand your trading actions. What it is not is a counselling service, or does it dive into your childhood, but rather a way of identifying triggers that allow traders to be more profitable by have a better understanding of why you did something.
It examines how people take on board information, what they do with it and how it is processed. It covers how you deal with the stresses of trading and the response you have to winning and losing trades. It helps with understanding why you let that losing trade run and not cut the trade sooner. By understanding these aspects, it can help both the beginner and experienced traders become better traders.
But this is not just about trading. By undertaking personality profiling it can help you in your personal life and how you deal and talk with family and friends. If you run a business then personality profiling will save you money by helping you to recruit the right people first time.
This passion to understand what makes someone successful was sparked by an unfortunate incident on the football pitch when I was 18. Stepping out at Anfield, home of Liverpool Football Club, in front of a sell-out 35,000 crowd, I was both nervous and excited, but my performance on that day did not showcase my true ability and skill. This got me thinking that sometimes success is not just about technical skill but also about what goes on inside our heads, how we deal with situations and what makes us individual i.e. our personalities.
Why is trading so easy to do but most people find it hard to make consistent profits?
In my experience no matter how much technical skill you have, or technical analysis you have done, if you do not know how to handle certain trading situations you will never become a successful trader. People handle different pressure situations in different ways, depending on their personality.
We all know that trading can be a stressful and pressurised environment so why do some people handle this better than others? We are all individuals and we all have different personalities. Some people learn by needing lots of detail others like to see the bigger picture and get down to details later.
I know this as I have taught thousands to trade and in my early years as a mentor I couldn’t understand why some people couldn’t understand the concept I was trying to teach and others got it straight away. I couldn’t understand why some would be so eager to start trading and others were more careful and wanted to cover every detail before they placed a trade. I realised it was all about how we learn and how each individual processes information.
There is a certain personality type that has a higher probability of blowing their account out, then others, so when I start to teach them it’s all about slowing them down. In fact, I also believe one of the reasons some people can never get ahead in their trading is because they’re trading the wrong market or timeframe. You have to fit the individual to the correct strategy that suits them and no one else.
If you gave 100 people the same trading strategy with the same currency pair, in the same timeframe, with entry and exit procedures you would certainly get different trading results. Even with the same trade setup some people will over analyse and other think the trades. Maybe they’re trading the wrong market or time frame that just doesn’t suit them. It all comes down to individuals. Where football is a team game, trading is an individual game. You make the final decision to place and exit the trade based on your strategy and you don’t reply on others to do this for you.
Any trading course will teach you about the basic skills needed in order to be a trader:
– Technical analysis skills – The ability to spot trends and repeating patterns, which you can just as easily learn from a book.
– Trading psychology & discipline – How to follow rules and be disciplined when making decisions, which is often easier said than done.
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– Risk management – The common sense principles of managing one’s appetite for risk against the potential rewards, with the 3 to 1 risk reward being the commonly used formula.
But I think there is something missing from this. If we all followed the above then we would all be successful traders right? Wrong. What is missing from the above is that an individual’s personality is not taken into consideration.
By understanding how we learn, how we process the information we need and how we make decisions, we can better influence the trading decisions we make. Around 80% of our personality type set from the age of 16 but 20% is what we learn from further life experiences and how we try to adapt in our current workplace.
The first thing to point out is that there is no right or wrong personality type in trading. One personality type does not make a better trader than another’s and this not about pigeon-holing people or being judgmental. It is purely about helping you to develop yourself so that you have a competitive edge over traders who are not developing themselves in this way.
If we look at a Pullback trade on the EURUSD as an example and how different personality types approach it:
The over analytical personality type – This person gets a signal in the EURUSD to go long, and this person over thinks it, the indicators are not quite perfect for them or it does not get to the right entry levels exactly. They do not see the bigger picture and by the time they have gone through all the detail the trade has gone. This personality misses lots of trades.
How I help – This person wants and needs more information about the setup.
The dive straight in personality type – In the same situation this person jumps in head first. They see the strategy and do not think too much about the risk. This personality has great big wins but also huge loses.
How I help – I slow them down, and help take them through processes and procedures so that they can limit the loses but still get the wins. Risk management is key for this person.
The fear personality type – In the same example this person is fearful of placing the trade as their last few have not turned out too well. They are happy when things are going ok, but they remember the bad trades and this puts doubt in their mind.
How I help – This personality type needs lots of support and to see that the strategies work over the long term. Back testing to build confidence will also help.
The relaxed personality type – This person is quite happy to let this potential trade slip past. They are calm and relaxed and they do not really take trading that seriously so they are never going to be successful over the long term.
How I help – Professionalise them. Get them to right a trading plan first of all.
Read here the 2nd part of the series.