Forex Information – Page 2

Our personalities are one of the main factors that affect the way we do things, especially when it comes to trading. Are you shy and timid, or aggressive, determined, anxious, confident – most likely, fall into one of four main personality types with some possible overlapping. Author and CEO Michael Pompian has contributed some helpful information in his book Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decisions in order to provide us with an idea of which of his four outlined personality types we fit into. Keep in mind that knowing this can give you an idea of your strong suits and where you need to improve when it comes to trading habits.

In the book’s questionnaire, traders are asked which statement is the most agreeable:

“Losing money is the worst possible outcome.”

“I should act quickly on opportunities to make money.”

“I need to be satisfied that I have taken the time to understand an investment I plan to make, even if I miss opportunities by doing so.”

“I should not be in charge of overseeing my money.”

According to Pompei, those that answered A likely fit into his Preserver type, while those that answered B are called Accumulators. These are both considered to be extreme personality types. Here’s a summary of how these traders are described in the book.

Accumulators are often determined and confident traders, but their mistakes come from believing that they have more control over their investments that they really do. This personality type is prone to overtrading, which can lead to losses.

Preservers find themselves worrying about their losses too much and can fall victim to making trading choices out of fear or anxiety. These traders need to understand that you won’t win every time, and that’s perfectly fine.

Those that answered C to the above question are labeled as Independents, while Followers most likely answered D.

Independent investors have their own original ideas but fall victim to confirmation bias by giving more credit to certain factors that support their own way of thinking. These traders are more likely to contribute wins to themselves, rather than thanking the bull market.

Our last personality type has been labeled as Followers in the book. These traders aren’t as motivated and often follow their friends or chase the fad. Many of these traders make decisions based on past history and might overestimate their tolerance for risk if they have received good results in the past.

As you can see, each of the four personality types are apt to fall victim to specific problems related to the way that they think while trading. The more aggressive Accumulators and Preserves might be too worried about losing money, or they could be overly confident, which leads to trading too often. The more relaxed personality types labeled Independent and Followers either come up with their own ideas or follow others, but either personality can make mistakes when analyzing data, making them overly confident and less likely to worry about their risk tolerance.

Of course, we’ve only based your results on one question from the book, so it might be a good idea to read Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decision and to answer the entire questionnaire to see if you get different results. Still, the information provided here should hopefully help you to have a better idea of the type of trader you are and where you need to make changes.

When you started out with trading or when you had the idea of trading, how did you picture it? Did you think that you would start out with an hour here and there, or did you listen to those stating that you can work a couple of hours a week and make it big? If you had any sort of thoughts sling those lines then you would be greatly mistaken. Much like anything in life, if you want to be good at something it is going to take a lot of work and a lot of dedication. If you do not put in the work, you will not get the rewards.

The way that the forex industry is going, things are getting easier and easier to get into and to gain access to various things that in the past would have been pretty hard to come by. In order to get into trading now, all you need is an internet connection and a bank account. You can simply go online, find the broker you want, sign up, deposit, and start trading.

Things being easy to access does not however make them any easier to do. In fact, the number of people who start trading is increasing, but so is the percentage of those traders that lose money or blow their accounts. This shows that while it is easy to get into trading, it is not easy to do it successfully.

From the outside, it is always quite difficult to judge exactly how you will be able to deal with certain situations or to cope with prolonged exposure to something that can potentially cause stress or loss. People from all walks of life and from all sorts of professions take up forex trading in the hope of being successful, coming from different backgrounds and having different base levels of discipline and dedication cannot really prepare anyone for how much dedication is actually required to be successful.

So despite the ease of access and the heaps of educational and learning material out there, it should be easy to get to grips, but sadly this is not the case, you will need to work hard and you will need to put in the work.

The majority of traders come away from trading as a loser, they have lost either all or at least some of their deposits. This does not necessarily make them a bad trader. In fact, everyone that has even traded, even the most successful ones, have had losses, lots of losses. Part of becoming a successful trader is being able to encourage and force yourself to continue to work once you have those losses. It is very easy to just give up and think that this is not for you, however having the discipline and dedication to stick with it, even though those losses is what will ultimately make you a successful trader.

If you take a professional sports player, it takes years of practice to be at a level where they can actually make money, it is exactly the same for someone wand trading. You will have plenty of losses at the start. In fact, it will probably take you a year to be a break-even trader, but if you keep pushing and learning, just like a professional sports player, you will improve and you will begin to win some of your matches, or in this case trades.

There needs to be an understanding when you first go into trading that there will be a lot of losses and it will be a very long process. If you expect to be profitable when you first start out then you will be disappointed and quit, however, if you come in knowing that it will be a hard journey, it will be far easier for you to push through these initial losses and to continue learning until you are profitable.

Trading is an endurance event, not a sprint, you need that mentality and you need to be able to stick with it, if you want quick results, you will need to look elsewhere, however, if you understand that trading will take years of practice before you are truly successful, then it could be a good path for you to go down.