read up folks! http://efmaefm.org/EFM06/134-EFM06 - Muehfeld, van Witteloostuijn TraderPersonalityPilot.doc thoughts?
This is nothing new. TraderDNA has been at this since its conception. I'm personally a huge believer in the significance of being conscious of one's psyche in trading and the importance of taking a psychological approach in analyzing one's own trading. Yes, I am using TraderDNA, and no I am in no way affiliated with TraderDNA, other than having used it. Sorry but i had to say this, as I have been asked about this before having talked about it periodically on et. I just like it and it has helped me Happy Trading all!
In advance, I have to apologise. But everything I got out of this article was blah blah blah. However I believe strongly that personality traits have a huge impact on the performance of traders. Sorry It's the chablis speaking on a hot summer night.
perhaps its the chablis then enjoy! ABSTRACT Behavioral finance is a booming discipline. To date, the main source of inspiration for behavioral finance scholars has been cognitive psychology. Cognitive psychology offers a rich set of insights as to human decision-making, and the biases that tend to influence human decision-making processes. Such biases provide important reasons as to why anomalies may characterize financial market behavior. In this explorative study, we build on this insightful tradition by merging in insights from yet another psychology sub-discipline: personality psychology. Learning from decades of research in management sciences, we argue that a human beingâs personality is a key determinant of her or his behavior and performance. We illustrate, for a limited sub-set of six personality traits (i.e., locus of control, optimization preference, regret attitude, self-monitoring, sensation seeking and type-A/B behavior), how a similar logic can be applied in the context of the study of trader behavior and performance. We explore our line of reasoning in a pilot financial market experiment, involving 34 economics students. The preliminary results are promising. 1. INTRODUCTION In the management domain, studies into the relationship between individual human features and organizational outcomes abound. In the current exploratory pilot study, we suggest to apply ideas from this behavioral management literature to issues in behavioral finance. In so doing, another branch will be added to the already flourishing tree of behavioral finance (see Barberis, Shleifer and Vishny, 1998, and, for an opposite view, Fama, 1998), as the key argument here is that financial market âanomaliesâ can be explained by merging in insights from psychology-inspired literatures. Starting point in behavioral management is the assumption that what happens in and to an organization can â at least in part â be explained with reference to key features of the homo sapiens who together keep the organization going. Ignoring the large micro-micro literature in organizational behavior, which deals with individual-level research in such areas as employee motivation and employer leadership (Robbins, 2002), we focus here on that part of behavioral management that ultimately seeks to improve the extant explanation of differences in organizational performance by introducing behavioral insights into the theory of the firm (van Witteloostuijn, 1998, 2002 & 2003; Jansen, van Lier and van Witteloostuijn, 2007). That is, the leading question is: Why do some organizations perform (so much) better than others? To date, the main source of inspiration for behavioral finance scholars has been cognitive psychology. Cognitive psychology offers a rich set of insights as to human decision-making, and the biases that tend to influence human decision-making processes. Such biases provide important reasons as to why anomalies may characterize financial market behavior. By now, the number of studies in this âcognitive financeâ tradition is huge. In the current explorative study, we build on this insightful tradition by merging in insights from yet another psychology sub-discipline: personality psychology. Learning from decades of research in behavioral management sciences, we argue that a human beingâs personality is a key determinant of her or his behavior and performance. We illustrate, for a limited sub-set of six personality traits, how a similar logic can be applied in the context of the study of trader behavior and performance. Subsequently, we explore our line of reasoning in a pilot financial market experiment. Of course, our empirical study cannot be but exploratory. Therefore, we speculate rather extensively about promising future work in an appraisal. Indeed, a limited number of studies already explored the personality psychology â behavioral finance interface. Here, we would like to briefly reflect on the four examples we were able to find. First, McInish (1980, 1982), in two early studies of individual investors, linked riskiness of investment opportunities to risk attitude, and further to the locus-of-control personality trait. This trait captures the degree to which individuals feel that they are in control of their own life and have the capacity to influence their environment (Rotter, 1966). Individuals with a strong control belief are referred to as internals, and their counterparts as externals. So, external individuals perceive themselves as helpless and as lacking the power to determine their own fates. Based on a student sample, McInish (1980) concluded that persons with an external locus of control favor less risky portfolios. In a study of actual investors, though, McInish (1982) found that externals tended to choose more risky portfolios. Second, building on these ideas, Chui (2001) experimentally examined the disposition effect â the tendency to sell winning assets too soon and hold losing assets transactions for too long â and, additionally, explored the influence of locus of control as a personality trait. He found a negative relationship between locus of control and disposition effect â that is, external individuals appear to be less affected by the disposition effect. However, locus of control does not seem to impact on trading volume as such. Third, combining insights from cognitive and personality psychology, Biais, Hilton, Mazurier and Pouget (2005) considered the influence of overconfidence in judgment and of self-monitoring as a personality trait as two human features that might relate to trading performance in an experimental asset market. High self-monitors possess greater social sensitivity than low self-monitors, and low self-monitors are less aware of othersâ reactions â or, at least, are less concerned with them (Snyder, 1987). Particularly relevant in the current paperâs context is that they found support for their hypothesis that high self-monitors achieve superior trading performance, possibly due to strategic behavior. However, this effect turned out to be significant only for the male individuals in their sample, and non-significant for females. Fourth, Fenton-OâCreevy, Nicholson, Soane and Willman (2005) studied the influence of illusion of control, a cognitive bias to which in particular individuals with a high internal locus-of-control personality are susceptive, as well as the Big Five (Costa and McCrae, 1992a, 1992b) on total remuneration. The Big Five (neuroticism, extraversion, openness, agreeableness and conscientiousness) represent a comprehensive set of factors designed to captured a wide spectrum of personality traits, each consisting of several lower-level traits such as anxiety, modesty or self-discipline (for an overview, see Matthews, Deary and Whiteman, 2003). The investigation into this relationship was part of an extensive study of 118 traders and trader managers in four large London investment banks between 1997 and 2002. Based on a sub-sample of 64 traders, they found a significant negative effect of illusion of control and certain personality traits, such as neurotism and emotionality, as well as a positive significant effect of openness to experience. We offer a three-fold contribution to this emerging, but still very limited, âpersonality financeâ literature. First, we develop a general framework for this type of study, translating behavioral management logic to a behavioral finance context. Second, we illustrate the general logic for six personality traits that can be expected to be relevant: locus of control, optimization preference, regret attitude, self-monitoring, sensation seeking and type-A/B behavior. Third, we explore our argument in a pilot financial market experiment with 34 economics students. The paper is structured as follows. In Section 2, we present our general framework. Subsequently, in Section 3, we introduce the six personality traits that we focus on in our empirical study. Next, in Section 4, we explain our experimental design. After that, in Section 5, we present preliminary evidence. Finally, in Section 6, we offer an appraisal. 2. GENERAL FRAMEWORK Without any pretension of completeness, we briefly introduce two important vehavioral management theories that seek for an answer to our central question as to human personality â behavior â performance linkages: corporate demography and upper echelon theories (Boone, van Olffen, De Brabander and van Witteloostuijn, 2004; Boone, van Olffen and van Witteloostuijn, 2005). In a way, both theories open up the black box of the firm by making explicit the human dimension that co-determines organizational behavior and performance, adding the latter to well-established theories of external and internal performance drivers (Boone, Carroll and van Witteloostuijn, 2002 & 2004; and Maijoor, Bröcheler and van Witteloostuijn, 2004). .... 3. SIX PERSONALITY TRAITS .... continued here http://efmaefm.org/EFM06/134-EFM06%...nalityPilot.doc
IMO, this paper appears to be deeply flawed: (1) They used "economics students" as a proxy for "professional traders". It's hard to imagine something further removed from a successful pro trader than a Dutch "economics student". (2) The "traders" were not trading real money and had nothing at stake. This thing is so typical of what passes for an academic paper on the financial markets... And an example of why psychology is, at best, a pseudo-science. I seriously doubt that these people have ever met a successful pro trader... Largely because such a person would have highly developed critical analysis faculties... And would not take these bozos seriously.
Trader Personality & Trading Performance No psycho mumbo jumbo needed to answer this one. There are basically 2 what you call "Trader Personalities": WINNERS and LOSERS. WINNERS are those able to pull more money out of the market than the amount they put in; LOSERS are those forced to leave money into the market, or worse have to continuously put in additional funds to keep on fooling around.
I think the idea of screening the personalities of traders... is to know who the losers are before they lose.
I was the one who failed the programmer aptitude test fresh out of college and then went on to be the ace programmer of 50 programmers at that company. I don't believe in using tests or prescreening people with psych tests to determine their abilities. and HoundDogOne just pointed out why