How To Use Your Personality To Become A Better Forex Trader
Last week, I made a video in which I discussed the importance of adapting your trading to your personality and finding your own way to trade. I believe if you can use your personality to trade Forex, your chances of success are much higher.
Later on the same day, I got a call from a fellow trader and trading coach. He made me realize I felt into a trap through the advice I gave. The truth is, everyone talks about trading based on your personality. It is one of those principles that is definitely trending.
Here's the problem: no one tells you HOW to do it.
I don't want to be the guy giving you surface advice. I always say I want to give you what most people charge for, basically for free. So this is what this article's for.
I was very excited following that phone call and noted down a few ideas for this article. I want to give you a good framework you'll be able to use in using, because if you want to trade Forex for a living, you must learn to use your personality.
Use Your Personality To Become A Better Forex Trader
I recommend you watch the video above as I'll be giving a few more examples. The written part of this post covers the theory. I'll use my personality as an example too.
Define Your Personality
That might seem very obvious but if you want to use your personality in trading, you must know what it consists of.
There are several ways to do this, but I like simplicity. I recommend you do a free personality test through 16Personalities. You have to answer a few questions (takes about 12 mins) and you'll discover your personality based on 4 traits:
- Introversion (I) or Extroversion (E)
- Intuition (N) or Sensing (S)
- Thinking (T) or Feeling (F)
- Judging (J) or Prospecting (P)
Following the questions, you will receive a very interesting report about your personality. I am an ISFJ. Hit me up if you got the same!
Whatever your personality is, it's your job to use it to your advantage. We'll do that in the next steps.
I strongly recommend you take a look at the full report you got. Not all of it will be useful in trading though, but it's good for you to understand it. You might realize things you didn't know about yourself.
What's important for trading is mostly about how you tend to act. For instance, are you someone that is calm or excited? In the next sections, I'll guide you through understanding what may be more appropriate for you based on your personality.
Decide on What To Trade
I'll be using my personality as an example here, but you should be able to follow a very similar process for yourself.
There are a few questions you can ask yourself:
- Am I more comfortable in fast action (as opposed to planned action)?
- Am I able to focus on a chart for a few hours?
- Do I tend to be impatient?
If you've answered no to any question above, you might be a better trader on higher time frames like me. In general, Extroverted individuals are “enthusiastic and more easily excited” while Introverted individuals are more calm (16Personalities).
I prefer to be less in the action so I go with higher time frames. Don't get me wrong…I do love when my trades get closed in profit quickly, but I don't like having to react quickly. I also adapted my trading to trade lower time frames, but only when volatility is decreased (see When To Trade Forex To Maximize Your Lifestyle & Profit?).
The Introversion vs. Extroversion spectrum shouldn't be the only indicator of what you'll trade. However, if you usually like to be moving fast, lower time frames will be better for you. If you prefer to think, analyze, then higher time frames will be a better fit.
You can also think about the currency pairs you'll trade. Don't go with highly volatile pairs (GBP/JPY, GBP/NZD) if you don't like seeing big spontaneous movements.
Decide on How To Trade
When it comes to “how” to trade, you'll have to think about how you prefer to do things in your life. Are you the kind of free flowing person, or are you the highly organized type of individual?
Discretionary vs. Systematic Trading
Some people have a very hard time respecting strict trading rules. They prefer to have some room for interpretation.
The Judging (J) or Prospecting (P) spectrum seems to represent that.
Judging (J) type people are very structured and can even have a mental checklist. Those people will probably want to have very clear trading rules along with a checklist on their desk. On the other hand, Prospective individual are more flexible. Those might be approaching trading with a less rigid, and slightly more open approach.
I personally am halfway between the two. I need to be organize but I also don't like to be too strict about what I'm doing. I want some freedom.
If you were to look at my trading strategies/plan, you'd see that I do not focus on rules, but more on a process to follow.
Important Note: I know what you're thinking…that is not to say that Prospecting individual do not have rules! They have a methodology but may do slightly more analysis to come up with a trade.
Types of Trade
This might be based on your preference alone, but you must be aware of the fact that some people are more contrarian than others. In a market that is going up, those traders might be more inclined to look for reversal trades. Read The 3 Types Of Trades You Must Know.
At the opposite, trend traders are looking to take trade with the consensus of the market. If you prefer to act in accordance to others, you might prefer trade setups such as breakouts and pullbacks.
Something To Be Aware Of
While reading my report for the personality test, I became interested by the last aspect of personality. That is, Assertive vs. Turbulent.
According to 16Personalities, an Assertive individual is more resistant to stress and refuse to worry too much, while a Turbulent person is generally more success-driven and sensitive to stress.
I feel that trait can easily be applied to trading. The logic is that not everyone reacts the same in a given trading situation. People with a Turbulent personality might react more emotionally to losses. This is not necessarily bad, but it's something to be aware of.
The more you practice, the more confident you become and the less emotional you will feel when facing good/bad times in trading.
There are no good or bad personality traits in my opinion. Moreover, a personality isn't necessarily fixed. As you get exposed to more things and practice the skills you want to develop, you may very well change.
The main goal of this article isn't to restrict you to one way of trading. In fact, you can trade totally at the opposite of your personality and still be successful. However, that will require more work.
Using your personality to guide you is a good tool. It's something to be aware of. You can then use your strengths at your advantage and work on your weaknesses. That's what makes great traders!
What's your personality type? Does it represent you well? Leave a comment below!