Truck and Barter: Day Trading

April 08, 2005

Day Trading

By Bob

Undoubtedly, some of our readers have thought of quitting their jobs and becoming daytraders. Of course, I went to graduate school to possibly get away from the vagries of the financial markets if I so desire to at some point. You'll be happy to know if you do choose to quit your job, that your personality doesn't look to play a significant role. From the research paper "Fear and Greed in Financial Markets", the abstract:

We investigate several possible links between psychological factors and trading performance in a sample of 80 anonymous day-traders. Using daily emotional-state surveys over a five-week period as well as personality inventory surveys, we construct measures of personality traits and emotional states for each subject and correlate these measures with daily normalized profits-and-losses records. We find that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific "trader personality profile", raising the possibility that trading skills may not necessarily be innate, and that different personality types may be able to perform trading functions equally well after proper instruction and practice.

The downside is that emotions seem to be significant. Controlling these is far harder than probably anything else. If somebody has ever told you that you have "ice water running through your veins", it may be worth a shot.

I should say that this isn't new information. Every trader knows this, even I have battled this and still do, but researchers need to publish something afterall. I find it interesting how academics take common knowledge, throw some math and statistics in, and then pat each other on the back for a job well done.

Posted at April 8, 2005 05:56 PM

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