How Understanding your Personality can Help You Become a Better Trader

To properly comprehend the market, you need to understand yourself. Check how you react & interpret market behaviour. Know your strengths and weaknesses. Be self-aware.

Next, find and choose a strategy, trading style, or plan that aligns more with how you think and behave. This would help you achieve consistency and trading success.

Let’s closely look at the different aspects or areas to consider and decide on (based on your temperament) before trade execution:

1. Style of trading

What trading style works (would work) best with your character? Your personality can determine how you make decisions and deal with stress. It can tell if you are suited for a short- or long-term trading method.

If you are someone who functions well under pressure, thinks fast, then scalping or day trading might work for you. On the other hand, swing trading might fit a person who prefers some time to plan and analyse.

You want to choose a technique that feels more natural to you.

2. Time for trading

Are you someone who believes he is more productive when he works in the morning, afternoon or evening?

Since the forex market can be traded 24/5, you can use your favourite period in a day (when you “concentrate” the most), to examine the market or execute your trades.

3. Approach to market analysis

Are you more visually oriented (good at spotting patterns) than how you’re into research? Between technical, fundamental and sentimental analysis, which one do you enjoy or prefer doing most? Which one is more/most effective for you?

Although these methods of market examination cannot be completely separated, investing in the one you understand most can help you attain deeper analysis.

4. Your risk tolerance

Here, knowing how comfortable you are with losses can guide your position size or risk management.

If you are the reserve and cautious type, you may use a tight risk to reward ratio; aim small profits. Or even keep things moderate.

But an adventurous and a more risk-tolerant person might do the opposite; target high profits and be open to big losses (all within a good trading plan too).

Both traders can be well-skilled and profitable but only differ in risk appetite.

Stick to what brings you consistent positive results.

FAQs

1. Why does personality matter in trading?
Your values, mindset, life patterns influence how you make judgements. This is why going for a trading style that matches your person can be very helpful.

2. Can I become successful if I am an impatient individual?
Yes, with a solid trading plan and a style that would allow you time to think.

3. Is it possible to change my personality over time?

It is not impossible. But it would be more beneficial to polish your natural patterns by improving your habits.

4. How do I find out what kind of trader I am?
A journal can help here. Track and note your reactions to wins/losses. Alternatively, you can run a trading personality test online.

5. What personality type is best for trading?
I don’t think there is a personality type that can be considered as the “best”. Taking advantage of your strengths plus being disciplined, patient, non-greedy and having a plan are the few tools you need for success.