The Role of Psychology in Trading: Which Personality Types are Predestined for Success?

Psychology in trading plays a leading role. This is not intuitive, since the collective imagination assigns the trader a calculator-like personality, an inflexible and intuitive technician. Few, among the uninitiated, recognize the bond between emotions and trading. Yet that's exactly how it is; the way emotions are managed impacts, and it does so in a profound and dramatic way, the hopes of success. Now, the way of managing one's emotions is a component that can be trained. Of course, it has to do with character, with personality. Hence an unpleasant truth: some people are naturally inclined for trading, others a little less so. Therefore, it is good to know what psychological type one belongs to, in order to surgically intervene on the personality traits that are not functional to winning trading. In this article we will refer to one of the most famous psychological tests, the MBTI, and we will clarify the psychological types destined for success in trading.

Why Character Matters in Trading

First, however, a reflection on the role that character, or better to say one's psychological identity, plays in trading. A preliminary clarification: everyone can trade. Or, better to say, everyone can study, train and embark on a trading career that is potentially full of satisfaction. The purpose of this article is not to discourage certain categories of people, but rather to give a clear reference of the category - so to speak - of the predestined. For everyone else, it is still useful to know the model to strive for, during the inevitable work on oneself that is associated with trading. That said, let's get to the crux of the matter. How does character affect trading? It does so in many ways, especially in terms of emotion management. The truth is the following: to win in trading, one must know how to manage one's emotions. These represent an inevitable element, both in beginners and in experts. It is simply impossible, precisely by virtue of human nature, to even imagine trading without emotions. After all, even in the safest contexts, there is always a certain degree of risk. The stakes, in trading as in speculative investing in general, are always high. Now, it is evident that some psychological types, some personality categories, are characterized by a natural tendency or ability to control emotions, first recognizing them and then trying to channel or reduce them according to purposes. Everyone else, let it be clear, can learn to do it. Another personality trait that profoundly affects trading is mental clarity, the attitude of putting everything in its place, of understanding the real nature of things and the interconnections between various elements. It is what is called in jargon "analytical-synthetic aptitude". Again, some psychological types are naturally predisposed to develop this aptitude. But it is good to repeat it: those who have not developed it can still do so, whether they are young or adult or elderly. Obviously, there are many other traits that characterize the good trader. We will mention only one more: the ability to concentrate. An ability that can be trained, of course, but that some possess in a completely natural way. Especially if connected to a tendency to isolate oneself from the outside world, to introspection. The issue is very complex. Thanks to the MBTI test, however, it is possible to clarify.

What is the MBTI Test

Let's make one thing clear: the MBTI test is not the classic psychological test found online. It is not that type of test that is done just to try, a bit for fun and a bit out of curiosity. It is a real psychological test, developed by one of the fathers of world psychology. The theory behind it, in fact, was formulated after years of study and training by Gustav Jung, a character known even beyond the academic sphere. Not surprisingly, the test is widely used in many complex areas, not least professional selections, during admission tests to the most prestigious universities, etc. Obviously, given its effectiveness and importance, the MBTI test is not free. The association connected to it offers the test for a few dozen dollars, so it is quite accessible. However, there is good news: a leaner version, less complete but only slightly more precise than the test is available online... For free. There are many sites that offer it. Among the most reliable, lastessamedaglia.it. The test, despite the simplicity of the structure, is not easy to perform. It consists of a few dozen questions. Each of these confronts the reader with a situation, a thought, a reasoning, a declaration of intent, a character trait. The reader must vote (with a scale from one to five) the adherence of the situation to what his or her feeling is (sometimes a dry true vs. false is proposed). The element that makes it all more complicated is the need to tell the truth, not to indicate what one desires but what one is. Some questions, however, are a real punch in the gut. Hence the complexity. Therefore, when you take the test, be honest and put yourself in a position to be able to concentrate. What happens after taking the test? You will be revealed the psychological type you belong to. Often, since people are often difficult to categorize, two or three other types with which you have a certain affinity are also proposed (a sort of second and third choice). But what are psychological types? They are simple categorizations, ideal-typical personalities, developed by Gustav Jung. Each psychological type is built on four dualities. To understand this mechanism, let's take as an example the most common psychological type: ISTJ, which is nothing more than the acronym for Introverse Sensitive Thinker, Judge. Introversion. ISTJs are introverts, but not in the way the collective imagination is led to believe. Introverts in Jung's theory are those who direct their cognitive and mental forces on themselves more than on the world. The opposite of Introversion is Extroversion. Sensing. This function indicates the way in which reality is perceived. The IST is an empiricist, as he learns reality through experience, obviously mediated by the senses. The opposite is Sensing is Intuition, i.e., the tendency to read between the lines, to intuit reality, to discover the connections between things. Intuition is associated with the letter N. Thinking. This function indicates the way in which information is processed, but also its use. Thinking means the tendency to take information and derive theories from it, laws to be applied in other contexts. The opposite is Feeling, which indicates the tendency to process information in an instinctive, creative, almost uncontrolled way. Judging. This function indicates the relationship with others. Judging means relating in an objective way, without bending the rules in the face of exceptions. Perception, its opposite, means putting the individual specificity at the center, in a perspective of empathy with others. The dichotomies, therefore, are four.

• I vs E (Introversion vs Extroversion)
• S vs N (Sensing vs Intuition)
• T vs F (Thinking vs Feeling)
• J vs P (Judging vs Perception)

All possible variants give sixteen combinations. Not surprisingly, there are sixteen psychological types: ISTJ, ISTP, ESTP, ESJ, ISFJ, ESFP, ESFP, ESFJ, INFJ, INFP, ENFP, ENFJ, INTJ, INTP, ENTP, ENTJ.

The Psychological Types Most Suitable for Trading

In this paragraph we will not go on to analyze all the psychological types. If you want to learn more about them, we recommend again lastessamedaglia.it, which dedicates a long article to each type. Below we list the types that are most inclined to trading, put in order of "affinity with trading". All this, it is good to repeat it, does not mean that other psychological types cannot trade, on the contrary. They only need a bit more in-depth work on themselves. INTP. These people are called, by MBTI theorists, "the thinkers". They are introverts, therefore inclined to work on themselves; intuitive, so they manage to grasp the true essence of things; they are inclined to the construction of ideas; they are open to the world but sometimes not very objective. This makes them anxious, and in fact this is the characteristic that makes them more inclined to trading than other types, but only up to a certain point. On the other hand, they are very analytical and manage to abstract dynamics from events (a very important gift for managing markets). According to the theory, the typical jobs of INTPs are analyst, engineer, strategic planner, as well as scientist and professor. ESTJ. These people are called "workaholics" by MBTI theorists. They enjoy an excellent but not outstanding affinity with trading. They share with INTPs the tendency to abstract theories from individual events and to intuit dynamics. This is precisely what makes them, potentially, good traders. Their flaw, if we are talking about trading, lies in their tendency to lack flexibility. On the other hand, they are very attentive to details and organize their own work and that of others well. Many ESTJs are found among managers, officials, economists, financial analysts, technicians. ISTJ. The nickname given to these people is "the accountants". They are the most widespread psychological type. Luckily, they have a fairly high affinity for trading. ISTJs are solid, logical (T), prudent and skeptical (S) people, capable of working on their own personality (I). Prudence, in particular, as well as a certain solidity, makes them potentially good traders. On the other hand, not being "N", they may lack intuition. In general, then, they are not very open to novelty, so they struggle to change strategy or approach, if their trading goes wrong. In any case, if we exclude these flaws (venial up to a certain point) the affinity with trading is relevant. Among ISTJs there are many bookkeepers, accountants, managers, officials, finance officials, economists, technicians. INTJ. This is the psychological type best suited to trading. On the other hand, it is present in a very small measure in the entire world population. It is the rarest type of all. In parentheses, they are called the "systemists", and not by chance: they are the only ones able not only to understand the rules underlying the existing, but also to create, moreover in a perfectly logical way, new theoretical systems, new ways of seeing the world. At the same time, however, they are more than logical, objective, prudent people. In short, they are able to innovate, but to do it... Prudently. In general, they are also very intelligent. INTJs generally hold the following occupations: systems analyst, financial analyst, investors (precisely), scientist, astronomer, judge, programmer.