04 May 2023
Many articles have been written about the psychology of trading, but sometimes it is interesting to hear thoughts and views from the horse's mouth. For example, a recent survey on the Newtraderu website gives a fascinating insight into the actual beliefs of professional traders and what they believe impacts their trading activities.
This survey involved more than 1200 traders spread across various online trading communities to give a diverse sample of data. There is an interesting demographic breakdown of the data:-
The gender split: 89% of traders are male, and 11% are female
Age profile: 5% are aged under 25, 31% between 26 and 40, 40% between 41 and 55, 21% between 56 and 70, with 3% over 70
Geographical split: 59% USA, 18% Europe, 9% Canada, 9% Asia, 3% Latin America and 2% Africa
It is essential to recognise that the 1273 professional traders involved in the survey were not hand-picked. So, it is time to delve deeper into the data to see what makes professional traders tick.
When looking at feedback from professional traders, the results were consistent across age, gender and geography.
Psychology: 96% believe psychology plays a vital role in trading
Emotions: 91% recognise when emotions are affecting their trading decisions
Management: 34% have a strategy for managing their emotions
Dangerous avoid: There is a 57% gap between those who recognise when emotions are affecting their trading and those who have a strategy to combat this
The final figure is perhaps the most startling, the fact that 91% of traders recognise when emotions are affecting their activities, but only 34% have a strategy in place. This suggests that the returns of 57% of professional traders who replied to the survey are negatively impacted by emotions. How much is this in cold hard cash?
From the outside looking in, many people automatically assume that all traders are confident and, to a point, arrogant. The truth is that those who appreciate their emotions and the vital role of psychology are the ones who deliver the best returns. As financial markets constantly evolve, the education and learning process we all go through is never-ending.
In what may be a reflection of a certain degree of confidence amongst professional traders, the survey found that:-
• 43% struggled most with fear
Interestingly, as fear and greed are often mentioned as the most significant drivers for traders, it is surprising to see one at the top and one at the bottom.
There is a very fine balance between confidence and facing reality. As a professional trader, you must have faith in your ability and a willingness to learn and sometimes face cold, hard, uncomfortable facts. Unfortunately, for many professional traders, the reality is that emotions do get in the way of trading, sometimes positively but more often negatively, and they need to be managed.
In many ways, the takeaway figure from this survey is that there is a 57-point gap between those who recognise when emotions are impacting their trading and those who have a strategy to combat this. In essence, it looks as though some professional traders are not operating an efficient stop-loss system which can significantly enhance overall net returns. So are they holding failing positions to prove a flawed point?
Professional traders often attract a degree of criticism, and there are many assumptions, several of which are shown to be flawed by this survey. It may be a case of overconfidence on the outside while a greater appreciation of reality within. Either way, this is a fascinating insight into the world of a professional trader.
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