One of the most researched and dependable personality profiles is “The Big Five”. These are personality traits that can really help people understand themselves, and why they do things the way they do. The five traits are Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism. All of them are useful to put together a story and picture of ourselves, but I just want to focus on some interesting things about neuroticism, particularly a few things that I picked up from listening to an interview of Vanessa Van Edwards, author of Captivate.
Neuroticism is essentially how we worry. If you are the kind of person who imagines every what if scenario, you are likely high in neuroticism. If you are quite laid back, and generally believe things will work out okay, you are likely lower in neuroticism. Immediately your wish might be, especially if you are high in neuroticism, to be lower, to be a more cool and collected person, but as Van Edwards points out, we need both. We need people who will be calm in times of crisis, and people who will prevent those crises from even happening.
One of the most interesting things however, as it relates to you as a trader, is how we soothe ourselves as either high, medium, or low neurotic people. As you can imagine, a person with low neuroticism can soothe themselves back to baseline much faster than a person with higher neuroticism. This is actually because the feedback mechanism to secrete serotonin is faster in people with low neuroticism. So naturally they don’t need a lot of help to get back to calm.
People with higher neuroticism have a longer duration to get back to normal. Think of the person still shaking after a negative interaction hours later. For people with higher neuroticism, it helps to create an environment around them that soothes from the outside. Motivational quotes on the walls, computer, out in the open all serve to create an environment to indeed help a higher neurotic person that things will in fact be okay.
How does this relate to trading?
Think about the person you are, think about how you perceive worry, whether in life or in the markets. If you are low in neuroticism, you likely can come into a trading day sure of your abilities, but not necessarily with a specific watchlist. You might have an easier time staying in a trade; however, you might equally be prone to forgetting stop losses, or think that trades will come back. While the belief that everything will work out serves you highly in many aspects of trading, risk management and stop losses might be one area you want to heavily focus on to mitigate a lackadaisical temperament.
If you are high in neuroticism, there is likely to be a lot more worry going into a trade of all the things that can go wrong. This would help a trader to mitigate risk heavily, but it might also leave someone prone to analysis paralysis. Therefore, some of the tools you can focus on is external soothing. Checklists for trade entries, favourite quotes on your monitor, written trade plans can all help ease your worries about entering and holding the trade. It would also mean to plan a little extra time in between trades, especially after a bad one in order to make sure you’ve given yourself sufficient time to shake off the nerves. On the positive side, traders higher in neuroticism likely have very methodical trading strategies that are replicable over time and can help them stay consistent over a long period of time.
