Before you Start, Some Tough But Crucial Questions

Your Personality – Can You Be A Winner And If So, How?

Understanding the type of personality you have is far and away the greatest factor determining your success than anything else! So I shall devote a whole section on this. If this is the first time you have encountered these ideas, you may be in for some surprises as you discover traits in yourself that you never knew you had.

This is a question many books on this subject fail to address, yet it is crucial to know yourself to some extent before even starting. I am not a psychologist, so this will not go into some dense theory. I started out trading in my 20s – and floundered around for quite a while before I discovered a style of trading that suits my personality. I am somewhat impatient, but can react quickly to changing circumstances. This can work for me or against!

Similarly, you have to ask yourself some searching questions about your type of personality so that you can select the best trading approach and methods for you.

Many surveys have been done on successful traders over the years to try and discover if there are common traits that you must have to succeed (see the Resources section). In my opinion, these are among the basic traits that are necessary:

  • Emotions and Trading Mindset – whether you can remain calm in the face of adversity,
  • Discipline – whether you can stick with your original plan through thick and thin, or whether you jump ship at the first sign of trouble
  • Confidence – do you have a high sense of self-confidence about your ability to achieve success which is not based on ‘wishful thinking’ but on a deep knowledge that you will succeed? This is not arrogance (arrogant traders almost always end up losing whatever gains they have made)
  • Risk Aversion – you must have a certain willingness to accept risk and be able to act immediately when your method tells you.
  • Emotional Sensitivity – Can you trade against an overwhelming body of opinion calmly?
  • Inflexibility – can you cut your losing trades early? Success often depends on being able to cut and run to keep losses manageable.

Emotionality: This describes a relatively calm state where you remain in control (more or less) of your emotions during any stressful situation. Most of us has experienced emotional shocks, such as divorce, or a death in the family. Seeing a trading position go hard against you can give a trader similar extreme feelings of loss, felt in the pit of your stomach. In psychology, there is a great body of research into loss and the grieving process.

  • Are you an over-emotional person? If so, perhaps you could benefit from some training to ‘de-sensitize’ yourself.

Discipline: Ah yes, this is a tricky one. Most of us have come across individuals that had so much discipline that they couldn’t get out of the way of an oncoming disaster. The kind of discipline I mean is the kind that keeps you focused on trading your plan after you have planned your trade. Your plan has told you that the trade is a high-probability winner, but if it does turn out to be a loser, you take confidence that you followed your plan, and in the long run, your plan will provide you with winners.

  • Can you follow a plan through that you have devised, based on solid principles?
  • What is your track-record of being focused on a major goal?

Confidence: If you are supremely confident that this trade you have put on just can’t lose, you will end up a loser. The confidence I mean is the confidence that whatever the market throws up, you can manage your account prudently. ‘Experts’ are much more liable to show over-weaning confidence in their abilities than ‘amateurs’, and so do younger traders.

Interestingly, this is one reason why we often see financial ‘experts’ being so patently wrong in their forecasts. They have over-confidence in their abilities (and are usually following the herd). Some good traders even monitor certain ‘experts’ for a guide which way to trade the market! (opposite to the expert, of course).

Older heads are usually wiser, and with their world experience, can make super traders. Also, men are more likely than women to fall prey to over-confidence. The main point here is that to be successful, you have to think for yourself and come to your own conclusions. By all means, follow the financial press/internet blogs/TV/radio, etc, but take all opinions with a bucket of salt, unless they are backed up by solid evidence. Opinions are cheap!

  • Do you think you are smarter than you really are? Have you ever come a major cropper by taking on more than you could handle?

Risk Aversion: Risk-averse people are not traders, but they can be investors (but only in very low-risk investments). Risk-averse traders take forever to ‘pull the trigger’ after they have had a signal which tells them to act. This means they are buying when they should be selling, and vice versa. And risk-averse people do not believe in technical analysis, and tend to get in near the end of a trend! We try to do the opposite.

  • Do you take forever to make decisions in your life? If so, spread trading may not be for you.

Emotional Sensitivity: Do you like to go with the crowd? Do you cheer when others cheer (at a football game, for instance)? Winning traders react in an entirely opposite way to the majority. Yes, sometimes it is right to go with the flow, especially when in a strong trend. But when everyone is screaming “Buy Gold”, for example, it usually pays to look for a change in trend using well-known technical indicators.

  • Can you do the opposite of what everyone else seems to be doing and feel confident doing it? Remember, the only thing that goes with the flow is a dead fish!

Inflexibility: Many people are rigid in their views, they are ‘stuck in the mud’ types that never bend, no matter what changes the world throws at them. While this trait may be admired in warfare (although sometimes at a cost of their lives), it is definitely not a winning trait in spread trading! Even a solid oak tree bends in the wind.

At the other extreme, there are people who constantly change their minds, depending on who they are with. The right balance is somewhere in between. In trading, the first type will hold on to losing trades, even though they are taking massive losses, because the analysis they did months ago was correct. They fail to see conditions have changed.

The second type will be shaken out of the tree at the first adverse move, only to see the market move in their direction after they have covered. They will see their account whittled away by a series of small losses that add up to one heck of a major one.

Luckily, you do not have to guess what kind of personality traits you have – what are your strengths and your weaknesses. There are several online companies that can offer you questionnaire tests that in a few moments can give you a pretty accurate reading. I urge you to investigate these for yourself. But a word of warning: Be prepared to be surprised! Here are two good ones (there are more): www.marketpsych.com and www.tharptradertest.com

What Does It Take To Win At Spread Betting?

Now we should have a much better understanding of what it takes to achieve success. I hope you can see that, contrary to popular opinion, success is definitely not achieved by getting tips (or a system) from some ‘guru’ and just following it to get winner after winner. You first have to get a picture of your personality strengths and weaknesses, and then find a methodology that fits right in with you.

I hope you agree that your trading career will be a marathon, not a sprint. I would like you to be trading (and getting better at it) for years to come. Of course, working on your weaknesses steadily is a very positive habit. Analysing each trade for what went right/wrong is a very good exercise.

You won’t find this message in many other places.

It is hard work at the beginning, and may be somewhat uncomfortable when you discover things about yourself that shatter your self-image that you have built up over so many years. But if you approach this work with curiosity and a genuine interest in understanding yourself, not only can you be a very successful trader, your personal life may well benefit, as you gain confidence in living your authentic life!

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