A trader’s character influences their trading style. Some make lightning-fast decisions, while others need time to think. Some rely on knowledge, while others on intuition. Let’s explore the psychological types of traders and how they differ from each other.
In this article you will learn:
- Different trader psychological types – intellectuals, instinctive traders, and intuition-based traders – influence their trading style and decision-making abilities.
- Intellectual traders prefer thorough analysis and often opt for conservative approaches like long-term investing, while instinctive traders tend towards emotional decisions and may overlook important signals.
- Intuitive traders often rely on subjective feelings and intuition, which can lead to successful decisions in uncertain conditions, but may also result in losses due to the lack of grounded decision-making.
We’re all different, each person having their own character traits, but there are several psychological types that can be distinguished. Is this important? Absolutely. Understanding which type you belong to can help you identify your characteristics and strengths, which can be used in trading to achieve better results. Let’s delve into the three main types of traders.
It’s All in the Mind
Imagine a person who, before buying pants, spends several days collecting statistics from all the stores: prices, fabric quality, customer reviews, and so on. Only after thorough analysis does he make a choice. Impulse purchases are for simpletons who don’t care about their own money. He is a serious person and makes every decision in his life thoughtfully.
This is roughly the psychological portrait of an intellectual trader. For them, trading on the exchange is always a carefully considered decision. They won’t invest right away; first, they’ll study strategies, analyze risks, and company indicators before starting the process themselves.
Intellectuals are characterized by long deliberations of each step, which can hinder them in situations where decisions need to be made quickly. They are slow and not always rational in stressful situations. Therefore, day trading is not at all close to such individuals. They often choose the conservative path — long-term investing.
Over the long term, intellectuals prove themselves to be good strategists, enduring specialists who can persistently pursue and achieve their goals. However, they often feel insecure when opening positions or when the market opens within a correction framework, such as after a price decline that occurred the day before.
To participate in short-term trading, such individuals need to understand that sometimes decisions need to be made quickly. To do this, they’ll have to overcome their fears and some of their stereotypes and start trading more actively.
Instincts Above All
Imagine a cliff, and beyond it, the sea. One of your friends runs by shouting, “Let’s dive in, there won’t be anything like this in life again!” And then jumps down. This is how instinctive traders behave.
These individuals don’t like to burden themselves with tedious analysis and evaluation but rather follow emotional impulses. Moreover, they not only follow their own emotions but also those of the crowd. Are stocks rising? Great, let’s buy quickly to earn more. It’s a questionable deal, but profit is possible — give me two! Such traders fear not losing money but missing out on profits.
Their main problem is emotions and the inability to pause to understand the situation. However, such individuals usually have a well-developed sense of self-preservation, but hope for luck and greed can lead them astray.
To be successful, instinctive traders will have to overcome their aversion to analysis and learn to recognize reliable signals. This requires experience and the ability to keep a cool head. Sometimes, as an option, such individuals are advised to engage in sports — then perhaps they will leave their emotions there and make more rational decisions in trading.
Betting on Intuition
A sunny morning, and the day promises to be simply wonderful. However, a person leaving home still takes an umbrella with them. At work, colleagues laugh: why did he bring it? After all, the weather was supposed to be good. And in the evening, it starts raining.
Meet the person with the umbrella — an intuitive trader. Fairness dictates to say that his intuition does not always work, and it rains in one out of ten cases. But still, when it does happen, everyone is very surprised.
Why does such a person sometimes intuitively make the right decision? It’s simple. It’s because he “turns off his head” and activates the subconscious, which makes the brain form a decision based on accumulated experience. That is, an intuitive trader must have a wealth of practical experience, and only then can he be successful.
The downside is that while traders accumulate experience, they may lose a significant amount of money. Therefore, during this period, it is recommended to trade in small amounts. Also, large deals are dangerous for intuitives, and it is very important to hedge them with stop-loss orders.
However, if such traders have enough practice, they gain an advantage in uncertain conditions when quick decisions need to be made. The problem is that intuitives find it difficult to cope with failures and are constantly under emotional stress, so psychologists advise them to develop self-control skills and self-confidence to feel more comfortable in the market.