Paul Farrell observes that 95% of traders don’t make it. 80% of all day traders lose money. One study found active investors turn over their portfolios excessively (258% annually) but made less than 12% on their money. Passive buy-and-hold investors with only 2% portfolio turnover had significantly better returns.

And, most day traders suffer negative health consequences from their hyper active market moves.

To find out what your trading instincts mean — to grade your own Traders Psychological Profile — answer the following questions Yes or N:

Traders Psychological Profile

Y N You’ve tried more than one new investment strategy this year

Y N Feel you’re buying and selling funds at the wrong time

Y N Rarely open up to anybody for feedback about your losses

Y N Subscribe to two or more newsletters, feel overwhelmed

Y N Can count on one hand all the good laughs this week

Y N Have a lingering resentment about someone or something

Y N You love cable news, but need more time to trade

Y N Rarely break a sweat when exercising the past few weeks

Y N Wonder whether you bet too much on recent investments

Y N Need more than three caffeine and alcohol drinks a day

Y N Feel “something” keeps you from making more money

Y N Frequently don’t trust your instincts or your strategy

Y N You’ve had a major family or personal loss recently

Y N Believe losses are caused by the market manipulators

Y N You’re overweight and snack often on comfort food

Y N Fear your future trades may fail due to a losing streak

Y N Diet and sleep are disturbed by worries about money

Y N Your retirement portfolio’s not growing fast enough

Y N No vacation in a year, and lack an active social life

Y N Nothing (or everything) interferes with making money


Add up the number of Yes answers. Farrell notes that if your total number of “yes” answers is six or more, then day trading is too stressful and risky for you.

The alternative to active trading is intelligent asset allocation. At the very least, he advises that you segregate your “untouchable” retirement money . . .


Stress test for traders: Do you need a new job?
Paul B. Farrell
MarketWatch, June 14, 2012

Category: Psychology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “Traders Psychological Profile”

  1. “active investors made less than 12% on their money. Passive buy-and-hold investors had significantly better returns.”

    Better that ‘less than 12%”?

    That’s pretty good these days – for both active and passive traders. The vast majority of individual investors would love those returns.

  2. constantnormal says:

    Please define “day trading”.

    I would have thought that it represented a subset of “active trading”, but this test would seem to indicate that “day trading” = “active trading”.

  3. SteveC says:

    Day trading to me means entering and exiting each day in cash. A very tough way to make a living.

  4. constantnormal says:

    SteveC: That was my thought as well.

    But this “test” indicates otherwise to me, more like closing a position before the opening trade has cleared, or perhaps a holding period of as long as a couple of weeks. I would consider “active trading” to encompass this style, as well as “day trading”, and as you say, day trading is brutal, suitable only for those with a knack for it, and a cast-iron constitution to match … which ain’t very many people …

  5. RW says:

    My impression was similar to SteveC’s and constantnormal’s, the survey could just as easily apply to swing trading, inter-day or even intermediate-term investors, as well as players on intraday market moves.

    I’ve done some swing trading in the past and that did occasionally devolve into an intraday trade when the market moved against my position strongly enough to force a rapid close out (discipline required this when a move breaks the lower bollinger band). I’ve never “day traded” as a discipline though; it frankly seemed absolutely crazy-making independently of the question of whether or not a reasonable profit could be gained from the practice.

    That aside some of the questions in the survey appear to conflate neurosis or even psychosis with a trading stance or, on the other hand, conflate reasonable suspicion regarding a market loss with paranoia; i.e, do I think the market in a particular security or sector can be and sometimes is manipulated? Freak’n A!

  6. TLH says:

    If you can earn 8% a year, I would say you are a successful trader. Over 30 years this is a ten bagger.

  7. boveri says:

    I can only assume Paul Farrell was misquoted – if not, the man is math challenged. Making less than 12%, assuming it’s not a whole lot less, beats the pants off the “market” this past 12 years, not to mention the zombie with 2% annual turnover.

    Anyhow in my humble opinion, buying individual stocks is appropriate for only two categories of investors, insiders and suckers.

  8. jaymaster says:

    One Y for me! It involved alcoholic beverages….

    I’ve averaged 16% per year return over exactly 25 years now. Graduated from college with a net worth of $160, and I’m close to $2 million now. All on an engineer’s/corporate manager’s salary. I’m finally comfortable with it all.

    Sometimes I go 9-10 months without a trade. I toyed with the idea of giving up my day job and trading full time, but why bother? I put in 10-15 hours a week on research, but I can fit that in comfortably in my spare time. And I enjoy it.

  9. blackjaquekerouac says:

    the purpose of “taking emotion out of trading” is to begin to understand that you need to everywhere and always do the exact opposite of what you think you should be doing. As Buffet said “be fearful when others are greedy and greedy when others are fearful”…yet this too misses the point. It should be “do the MATH when others are greedy. Do the MATH when others are fearful.” You’re going to take your losses…2008 is a classic example. The folks with the Big Short have wound up being the biggest losers. Those who took the hit and stayed the course with their strategy (was their a fundamental change due to 2008? No. Therefore i must take my feelings of loss out of the equation and “do the policy math” of Bailout Nation and proceed rationally from there) have been the winners. Even Buffet who bet big coming out of 2008 is looking like a snake that has swallowed more than he bargained for. To me it’s recognizing that upon successfully taking “you” out of equation and realizing “there are other non-you’s who have become successful just like your non-you” that then get’s “Investor You” to move on to the next trade and “climb out of the hole Alan Greenspan dug for everybody.” WITHOUT complications i might add. Leave that to the “catch up crowd” now as you can pick off your opportunities when that set must proceed more aggressively in order to “make their number”. Jamie Dimon and JP Morgan come to mind actually. For example “is it time to buy Morgan Stanley?” Do the math…but there is much to say “yes” to them…as well as a multitude of others that have “been left orphaned” in the rush to get on board a Wall of Worry that has already been climbed by a select few.

  10. [...] Paul Farrell's quiz will tell you whether or not you're psychologically suited for trading.  (TBP) [...]

  11. Crystalline says:

    Well, if your total number of “yes” answers is one or more, refresh yourself at this very “visual” academy for speculators…

    You see further when you stand on the shoulders of giants.

  12. ToNYC says:

    Thanks for the tip to Farrell. I found that focus on the tail events and actively investing in those projected outcomes was way more adrenaline-producing than waiting for the dark cloud covers on charts often presented with skewed-to-their-point axes or even, innocently, screen ereal estate. I got a similar adrenaline effect from texting with a 80′s baby, but it was neutered by lack of content. So it continues to went.