Personality and Trading Styles

Personality and Trading Styles

Have you ever noticed how so many of us have these lofty ideas of becoming successful in life within

the first couple of years in a new career? Perhaps it’s because we all know that we were made for

success. This zealous ambition affects all areas of our lives. Forex trading is no different.

Many traders enter the world of forex trading thinking they will hit the jackpot so to speak. The reality

is that all things in life require dedication, hard work, and patience.

Overall, forex trading should be void of any emotions. This is difficult considering that people are

largely emotional beings. Trading psychology is, in itself, a large topic with interesting information. I

want to hone it down to self-awareness. If you know who you are and understand yourself, you are

better able to manage your risk, choose the best trading style, and know when to walk away for a

break.

What is your personality? What trading styles are available?

Know your personality

Forex trading fits two personality extremes: impulsive and conservative. Most people are somewhere

in the middle, either leaning toward a predominantly impulsive nature or a more conservative one.

Before we elaborate on these two personality types, let’s clarify that there is no perfect strategy to

forex trading nor is there a single personality that is ideal for forex. The uniqueness of people is what

makes forex trading thrilling and rewarding. You take your unique character and pair it with a couple

of trading strategies that fit you. Voila! Success (hopefully). 

There is no right or wrong personality or

trading strategy. The successful strategy is the one that fits you, the trader.

With this in mind, let’s explore the impulsive and conservative personality types.

Impulsive

The fickle nature of the forex market plays into the hands of the impulsive trader. This trader can jump

into a trade quickly, gain profit, and jump back out. The thrill of the trade, the quick results, and the

instant gratification all appeal to the impulsive trader.

However, being impulsive does also mean that as a trader you enter and exit trades too early. The

forex market requires traders to judge the entry points and wait for the market to come to that specific

level. The problem with impulsive traders is that they often chase the entry levels, eager to get into

the market.

Are you an impatient trader?

Can you watch a trading strategy run its course?

How impulsive are you in real life?

Scalping, short-term trading, news trading, and breakout trading are the best strategies for those more

impulsive traders. The impulsive trader loves the rush of quick-on-your-feet thinking and reacting.

These strategies allow traders the thrill of quick trading as they experience the high of profits and the

low of losses.

Conservative

Conservative people by nature are tentative and cautious. They do not want to risk too much,

therefore they limit the amount of potential profit they can make in forex trading by not closing trades

at the appropriate time.

Their patience is a credit to them. The forex market requires patience. Patience to ride trends and not

pull out of trades too early. Patience to wait for change and profit. That being said, forex trading is

also about balance. Conservative traders are in danger of being overly cautious thus compromising

their profits.

Ask yourself the following questions to help discern if you are a conservative person:

How much risk are you prepared to take?

Are you naturally tentative and cautious?

Are you a patient person or do you prefer quick results?

Conservative traders will generally find that trend trading, hedge trading, and moving averages

trading are more suited to their personalities. These strategies allow traders to take their time in a

trade, analyze thoroughly, and experience more control over their losses.

Trading styles

Now that we have looked at the two main personality types of forex trading, let’s look at how to

determine your unique trading style. We will explore time frames and types of analysis. I touched on

these areas briefly in the personality types but here I want to expand on them in more detail.

At the end of this section, you should be able to pinpoint a more specific group of forex strategies that

you can explore. If you consider yourself an expert at forex trading, you may find yourself rethinking

your current strategies and what you can change to improve your continued success in the forex

market.

Timeframes

The time frame that suits your personality and trading style will affect the strategy you use and the

currency pairs you buy.

If you prefer to trade over a long period of time, allowing the market to develop over the next few

days, weeks or months, you will probably choose trend trading. You are riding the trend until it turns.

On the other hand, if you are a trader who enjoys short time frames, you’d probably trade on hourly

charts or scalp trading. In this case, you’d make small trades throughout the day. The challenge is

finding the currency pair with the smallest spread so that your trades become profitable at the end of

the day and not a string of losses.

Analysis

Traders frequently argue over the type of analysis a trader should take. Some advocate for technical

analysis while others insist on fundamental. The fact of the matter is that neither is better than the

other. What you need to be concerned with is using the analysis that works for you.

When deciding on the type of analysis you use, ask yourself if you prefer using news, economic

reports, and other political and financial factors to predict the market. In this case, you might want to

implement fundamental analysis

Perhaps you prefer to stare for hours at charts, looking for common behaviors in the currencies. If this

is you, you will find technical analysis appealing.

Generally speaking, fundamental analysis is best suited to long-term trading strategies, whereas

technical analysis works wonderfully with short-term trading.

The challenge

Although the two personality types discussed above are two extremes, most traders are found

somewhere in the spectrum between these extremes.

Impulsive

Conservative

The question is, where are you?

For those traders who are aware of their personality style, they may start trading with a strategy that

is best suited to them. For a period of time, these traders will probably experience early success.

This is great, until confidence turns into overconfidence. Suddenly the traders experiment with

strategies outside of their personality style. The result can be disappointing.

This is not to say that experimenting with different styles is discouraged. On the contrary, experiment

with various strategies to find those that work for you and the current trends of the market. If you are

going to test a new strategy, do so on a demo account until you are confident that the strategy is worth

your while and effective. In the meantime, stick to the strategies that you know are working well for

you.