Trading in the markets is the great equalizer.
The market doesn’t care if you are rich or poor, whether you came from an Ivy League university and work at Goldman Sachs, or if you are living in the rural countryside.
The market doesn’t know your color, race, or gender, or whether you are physically disabled – even a blind person can successfully trade options, as highlighted in a Theta Profits podcast.
The market can accommodate a wide range of personalities.
And many different personality types can successfully trade the market using a wide variety of styles.
It can be helpful to know your personality type and the trading style that is right for you.
In a Market Misbehavior podcast, Dave Keller interviewed Tom Atkinson, who said that to take your trading to the next level, you have to know your personality type.
If a trader has a personality weakness (and who doesn’t?), the market will find it.
The more one knows their weaknesses, the better they can compensate for them.
With that being said, let’s look at some personality weaknesses that make it so easy for the market to take away the trader’s money.
Contents
- The Arrogant Know-It-All
- The Anxious Indecisive
- The Money TightWad
- Conclusion
The Arrogant Know-It-All
Have you ever come across a personality type that is an arrogant know-it-all?
I couldn’t find a trading podcast that highlighted such a person.
So maybe arrogant, successful traders don’t exist —or if they do, they don’t exist for long?
In that case, we’ll have to imagine what such a podcast interview might be like.
Podcast Moderator: So you have 80% of your portfolio in this one stock in all bullish options positions?
Trader: Yeah, I have a bullish bias based on the company’s fundamentals, and my technical analysis suggests it will go up.
Podcast Moderator: But isn’t that highly leveraged and undiversified?
What if the stock crashes?
Trader: I’m always right about these things. So I’m not concerned.
A few days later, the stock crashes, and the trader’s portfolio is down 50%.
While the above is a hypothetical scenario, you can imagine that if a trader always thinks and behaves this way, they may get away with it this time or the next time.
But eventually, the scenario above would play out.
No one can consistently predict what the market or a stock will do.
Some of the best directional traders are only correct 60% of the time.
To be successful, the trader must have the mindset that the market can go against their position and be prepared to act on it or change their opinion on the stock.
The trader must learn to position size correctly and keep the portfolio diversified.
Can not keep all the eggs in one basket.
The Anxious Indecisive
On the other side of the coin, there is the trader who cannot make a decision or vacillates back and forth.
This is paralysis by analysis.
One chart indicator is giving a bullish signal on the stock, while another indicator is giving a bearish signal.
The trader turns to a third and fourth indicator, but still can’t find full agreement between them.
The trader now looks at additional data points—stock rating, market sentiment, put-call ratio, GEX exposure —plots the Parabolic SAR, overlays the Ichimoku Cloud, draws support and resistance and pivot levels, and so on.
This trader will end up not trading at all because the trader needs to have certainty before initiating a trade.
The personality type that requires certainty to initiate a trade is not suitable for trading, because there is no such thing as certainty in trading.
This personality type is also a bit risk-adverse.
So if a trade does get placed, the stop loss exit order is set so tight that the trade never gets a chance.
Or if it is an options trade, their position may be over-adjusted too frequently or exit too soon, taking profits too soon, etc.
Stocks are like wild animals.
They don’t move in a straight line, and they don’t move as predicted.
They have a mind of their own.
No amount of analysis will let you look into their minds.
The successful trader must be comfortable with ambiguity and be able to make quick decisions in the midst of uncertainty.
The Money TightWad
In the same vein is the money-tightwad.
Have you ever met someone who would drive around several blocks for half an hour looking for a free parking spot when a paid parking spot was readily available?
Is that an efficient use of time?
Is that an efficient use of capital?
After all, the person is spending on gas to save on parking.
A caged bird cannot sing.
A successful trader must be able to use money freely to make more money.
They need to be able to let money go.
Be able to take a certain amount of losses (but not too many losses).
Let the bird be free.
Let the trade breathe.
Don’t set stops too tight.
Be able to accept a certain level of drawdown.
If the trader is not comfortable letting the portfolio draw down 1%, then how is that portfolio supposed to ever make money?
If the person is not willing to pay $1.50 for parking to go to a job interview, how is the person ever going to get a job?
If a business is not willing to pay to advertise, how is the company supposed to thrive?
The trader needs to give up some money to make money.
Conclusion
Options trading is a job.
It is a job that requires working with numbers.
The trader needs to be in front of the computer, reading candlestick charts or high/low/open/close bars (or whatever you prefer).
It may involve plotting moving averages and reading a risk graph.
They need to look through a sea of numbers, picking out bid/ask prices from the option chain tables, sorted by expiration dates and underlyings.
It may involve the tedium of logging their trade entries and exits, performing post-trade analysis, and all that.
It will be ingenious to say that options trading is for everyone.
Some people do not want a job that requires them to be in front of a computer.
Some people want a job where they work with their hands (carpenter), outdoors (swim coach), or in the service of other people (nurse), etc.
Like any job, some people (and personality types) are better suited to options trading than others.
That is why, as kids, there are tests (such as the Myers-Briggs and others) to determine your personality type and what jobs you are most likely to be more suited for.
However, if you do find that trading is suitable for you, then the market welcomes all.
We hope you enjoyed this article on whether you need a certain personality to trade options.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
Original source: https://optionstradingiq.com/personality-traits-required-for-successful-options-trading/