Match Your Trading Style to Your Personality By Ken Hodor 7/25/13

Presentation Motivation Loaned book: The Mental Edge in Trading by Jason Williams, MD Thanks Mike

Overview Personality traits Psychological testing Trader style tests by Dr. Van Tharp NEO-AC recommended by Dr. Jason Williams Explore various types of traders Resources to explore your personality so you can determine your trading style

Trading is not Gambling A form of art An intellectual pursuit Logical reasoning Mathematical computation Recognize patterns Short and long term planning Luck determines wins and losses

Long-term Happiness Ability to pursue autonomous goals A sense of mastery or skill in something meaningful Experience feelings of relatedness with other people Note: Making money is not one of the key ingredients to long-term happiness

What does long-term trading happiness look like?

What Are Personality Traits? Enduring Does not change with time Pervasive Consistent pattern across all aspects of life Distinctive Easily described, assessed and understood

Personality tests Changes to personality Personality does not change after early 20’s years of age. Unless disease impairment or some other mental compromise (i.e. hit on the head) Repeated taking personality tests does not change outcome You ARE who you ARE…enjoy it to the max Don’t take tests to try to sway result Compromises results Directs you to poor, and unfulfilling positions or techniques. Be honest

Model of Personality Traits Neuroticism Extroversion Openness Agreeableness Conscientiousness NEO-AC is the Five-Factor Model of personality These are further broken down into 6 facets each

Examples of Personality Traits Broken Down into 6 Facets Each Neuroticism Conscientiousness (risk taking) N1: Anxiety N2: Angry hostility N3: Depression N4: Self-consciousness N5: Impulsivity N6: Vulnerability C1: Competence C2: Order C3: Dutifulness C4: Achievement Striving C5: Self-discipline C6: Deliberation More details are available in Dr. Williams’ book

Population Distribution of Personality Traits Not good or bad Just a matter of degree Personality Domains such as Neuroticism, Extroversion…

Example: How to Work with a trait  Anxiety

To Reduce Anxiety Deep breathing exercises Self-hypnosis Bio-feedback Guided imagery Cognitive Behavioral Therapy (CBT) Most useful and effective!

Change Behavior Drugs—SSRI  NOT PREFERRED! Cognitive Behavior Therapy—CBT Stop Sign Hold up a stop sign when negative thought appears. Shout it out Shout at negative thought! Substitute “ I am a capable trader and am learning from my mistakes” Sustain Kick out unwanted thought

Cognitive Behavior Therapy (CBT) Process Titration Exposures increase from low to high gradually Habituation Decrease response to stimulation through repeated exposure Greed Anxiety …

Avoid setting $ Goals Leads to: Anxiety increases artificially Disappointment Eventual failure Anxiety increases artificially Thus compromising cognitive ability Logic goes “out the window”

Better to Set Process Goals Such as: Make X number of trades But don’t over trade. Monitor trades Y times per week Follow system for entire month

Types of traders

Types of traders slide #1 Dependent Traders Follow the crowd Listen to advice about next trade Sucked into dead-end trades Experience anxiety over asserting themselves Need a stamp of approval from someone else Independent Traders Seek advice about learning how to trade not what to trade Take risks based on their own judgment Work hard to learn from failures and don’t repeat them

Types of Traders slide #2 System Traders Highly conscientious Discretionary Traders Low conscientiousness Conscientiousness traits: Self-efficacy Set goals and achieve them Orderliness Dutifulness Achievement—Striving Self-discipline Cautiousness

Van Tharp Trader Types Other Other Ken Other 3 others High Potential for Success Good Potential for success but requires some work Other Strategic Trader Planning Trader Detailed Trader Facilitative Trader Innovative Trader Spontaneous Trader Independent Trader Administrative Trader Values Driven Trader Socially Responsible Trader Accurate Trader Adventurous Trader Other Ken Potential for Success but requires lots of work or have others manage their money Other Supportive Trader Artistic Trader Fun Loving Trader 3 others

Case Studies of 8 Successful Traders Larry Williams Linda Raschke Ralph Vince KD Angle Andrea Unger Scott Ramsey Dan Zanger The Perfect Trader (C.M.)

The Ideal Trader (IMO this is for discretionary trader) Extremely low Anxiety Level (N1) Vulnerability (N6) Very high Self-confidence (C1) Order (C2) Achievement striving (C4)

Comparison to Ideal Trader

What does it take to be A Successful Trader Deep determination Ability to adapt when needed Mentally resilient to stressful situations Not so important: How educated they are How smart (IQ)

Cautionary Note: Addictive Personality? Can’t stop trading? Others annoyed by how much I trade? Feel guilty about trading? Trade out of boredom? Trade for excitement? Trade larger $ for excitement? Over trading? Trading losses created problems? Preoccupied trading outside of market hours? Yes to at least 3 of these  seek professional help!

Take full advantage of your personality traits Know your Limitations Vulnerabilities Make positive adaptations Behaviors Expectations Emotional responses Find a trading style that leverages your strong traits and plays down your limitations

Sayings KD Angle (hedge fund manager) “I have no expectation of a trade” Approach by thinking less about the money and more of a “Wait and see” Concentrate on the art and skill of trading—not making money Greed makes us do things—Anxiety and fear slows us down or stops us

Conclusion There is not an “ideal trading personality” Match your trading style to your personality by striking the right balance between logic and emotion.

References The Mental Edge in Trading by Jason Williams, MD NEO-AC 120 question free online test: http://www.personal.psu.edu/~j5j/IPIP/ipipneo120.htm Dr. Van Tharp Website for books and coaching: http://www.vantharp.com/ and Trader Test: http://www.tharptradertest.com