How Personality Types Influence Your Forex Trading Strategy

It is said that the narcissistic personality type is highly predominant within the corporate business world. ‘Megalomaniacs’ are held in high regard as their personalities are in line with the industry they find themselves in. They are confident, strong-willed and indifferent to anyone else’s emotions or situations. An non-empathetic nature is highly convenient in a cut-throat and volatile industry. Furthermore, these individuals will demonstrate strong leadership abilities with skills of money management. Yet, despite the similar traits, personality will influence one thing making each individual different. This is their forex strategy. While the strategy is based upon similar concepts, it is when you combine personality with a strategy base that you see a unique plan.

The question remains: what is the extent of this influence? Is it positive, or is it the personality that leads to negative trading? In this article we look at the impulsive and contemplative personalities and their affects on trading strategies.

An important part of trading is making decisions in split-second time frames. The impulsive trader – an individual who has a short attention span and likes to ‘keep things moving’ – is very comfortable making these immediate decisions. However, there are instances when this impulsiveness can be disadvantageous instead of beneficial.

Within the forex industry, the term ‘scalpers’ is used for individuals who choose to not base judgements on prior study. A successful forex trader will engage in a great amount of research and data analysis reviewing financial patterns over a number of months. However, ‘scalpers’ prefer to base their forex strategy on the trend running at that moment. These individuals are usually present with an impulsive personality, and will usually trade on emotion. Often these trades will lead to many profits, but soon the trend-following strategy’s success will fail and he/she will face a run of successive losses.

Unlike the impulsive scalper, the contemplative personality type traders are those who do their research and base their forex trading strategies on previous analysis. They will have watched the forex markets different trends over the past months and will make informed decisions. Although this is a more logical method on which to trade, it is not always the best. Forex does require some impulsivity as the market is a fast-pace, ever-changing industry and remaining in the same position leads to a chance of loss.

Often contemplative traders will cling to their positions for a prolonged period of time out of indecisiveness or arrogant surety that the pattern will shift. This is known as a ‘sunken cost’ and is an initial sign of overtrading. This is not usually part of the forex strategy, but goes off tangent and leads the trader into a psychological bind. It is only after he/she has lost a great deal of capital that they seem to realise the error of judgement.

As can be seen, personality does influence forex trading strategies. In order to assure you will be successful trader and use an effective plan of action one must remain objective when developing your strategy. It also helps to receive third party input.