The role of extroversion in trading

Personality can be defined as a dynamic and organized set of characteristics possessed by a person that uniquely influences his or her cognitions, motivations, and behaviors in various situations. One such situation is trading and the basis for the personality assessment that I created called the MAP (Market Awareness Profile).

The Big Five factors of personality are broad dimensions of personality and have been a staple in personality theory since the 1960s. I chose to use this model for the MAP for the same reasons I chose it when doing my doctoral dissertation—reliability. The five broad domains discussed in the model are:

  • Openness to change
  • Conscientiousness
  • Extroversion
  • Agreeableness
  • Neuroticism

In a series of posts over the next few months I’m going to discuss not only these broad dimensions, but the six facets that accompany each of the dimensions. For this post I’ve decided to start with extroversion as most people are familiar with it and have probably believe they are or have been called either an extrovert or introvert.

Extroversion and introversion are most typically viewed as being on a continuum and that each of us reside there, somewhere. The important thing to remember though is that we can fluctuate during different periods of our lives. As an example, I may be an extrovert when trading and an introvert while riding on the train to work. Introversion is not the same as being shy. It is more of a choice than a fear of social encounters. I may choose to be alone on the train so that I can focus on a task versus being alone because I lack self-confidence and a belief that I could contribute at a social level.

In trading, an extrovert may be more inclined to take risks and thrive off trading with “an edge” whereas an introvert may be more prone to an aversion of risk. Both can be debilitating to trading success if not kept in check. This task is often hard to do alone and one of the reasons why traders who are held accountable by a “boss” are more likely to be successful versus going it alone and unchecked.

One of the more defined facets of the extroversion scale is assertiveness. High scorers on this facet are more likely to approach trading with confidence, as they do life. The key is to not let this turn into over confidence as the market has a way of humbling those that do.  Odds are good that these traders will attempt to buy bottoms and sell tops. They are less inclined to have a trend following system or strategy which would require patience.

Low scorers tend to not fight the tape and trade with the flow and follow trends. They are more likely to use a conservative system or strategy that buys/sells only after confirmation of a break of resistance/support. Odds are good that fundamental analysis is a part of their system as well and that price action is typically left for larger time-frames such as daily and weekly periods.

Obviously, as stated earlier, we will find ourselves employing a strategy or following a system akin to those just mentioned. We may also have experienced several different strategies and systems and still feel as though the holy grail is out of reach. On the other hand, perhaps we’ve found a system or strategy that fits our personality and the marriage is one of success. If you are at that point, congratulations! If you are not quite there, patience, perseverance and the insight gained from a personality profile could lend itself nicely to the journey.

Now if you read this post and think it’s a bunch of crap, I offer this. Hundreds of thousands, if not millions of people are aware of moving averages and have heard and/or tried a system based upon a cross of the moving averages. In fact, there are some well known systems that are out there for anyone to use and some traders have proven to be quite successful using them. Why then is it that so many people fail at being a successful trader with all these proven systems out there? I’d argue that a big piece of that puzzle is the baggage (personality) that we each bring to the market.

I’d further argue that if you’ve been lucky enough to weather the markets for a period of time that you have tried several strategies and systems. Perhaps you’ve found one that fits your personality and you’ve found success. How much time, money, effort and other resources were spent to get to where you are now? If you’d only known then what you knew now, you could have saved so much. That is why I believe having a good idea of what you’re wired for in life can and does impact your trading. With that knowledge, you can save valuable resources and get to where you want to be more efficiently.