The next part in the series:
http://www.iitm.com/Weekly_update/Weekly_163_mar_31_2004.htm
Personality Type and Trading: (Part 6)
By Van K. Tharp, Ph.D.
The Cognitive Modes Continued:
Introverted Thinking (IT). IT is a skill that helps people solve problems involving in concepts, ideas, or symbols. IT is the process involved in the logical manipulation of ideas, as in philosophical reasoning or mathematics. If you are good in mathematics, you probably have highly developed IT skills.
This skill is important in hypothesis testing. Thus, you might use EN to come up with a new concept about the market. However, IT skills would be important to test out that hypothesis to determine whether or not it would be profitable.
People for whom IT is highly developed usually begin problem solving with a strong conviction. For example, in developing a new market theory, you would probably begin with a strong conviction that such a theory exists.
Traders who rely strongly on IT also tend to work best by themselves. They can remain highly focused and carry an idea through to completion. These individuals are strongly concerned with expanding their knowledge and understanding of markets (and the world). They want to explain their reasoning and justify their conclusions.
More traders in our sample showed IT dominance than any other cognitive style and this skill was important to the top traders. However, if you exclude the top group, it showed a negative correlation with trading success—probably because IT skills are useless without the ability to develop a useful hypothesis for trading.
Record how comfortable you feel with the IT mode of interaction by circling the most appropriate number below.
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To develop IT skills, I would suggest that you take a math class (especially higher math) or a course in logic. Or find an area that interests you, such as a particular aspect of the market, and memorize the definitions of the concepts and terms. Once you've done that, compare and contrast the concepts so that you know how they are similar and how they differ.
Extraverted Thinking (ET). When logical problem solving is connected to the external world, it is called extraverted thinking (ET). This mode of thinking allows one to take a problem and break it down into component parts. An extraordinary example of the ET mode is provided by Chuck LeBeau and David Lucas in their book, Computer Analysis of the Futures Market1. The authors break down the task of system design and development into component parts and then solve each part of the puzzle separately.
The ET mode is also used when one finds a goal to attain and then breaks down the attainment of that goal into distinct, sequential tasks, determined in part by their cause and effect relationships. For example, the task of becoming a proficient trader involves the tasks of self-assessment, self-transformation, system development, system testing, and then following the ten tasks of trading. I also used ET to develop that sequence.
Since personal problems can affect the type of system one uses to trade, I recommend that people do a complete psychological assessment, followed by a psychological clearing, prior to beginning the task of developing a system. Why? Because the system one might develop after clearing out any strong issues, will probably be much more profitable than anything developed prior to the clearing. And, of course, one must develop and test a system before one can actually trade.
Generally, people with highly developed ET will determine a series of priorities through logic and reasoning. They will weigh the pros and cons of each possible solution before deciding what to do. ET is usually a methodical, step-by-step process in which each component is carefully considered. People with a strong ET cognitive process will usually have a strong code of conduct or system of rules about how to lead their lives. They tend to be focused and very efficient in getting the job done. Fairly well developed ET is probably essential for good trading if you are starting from the beginning. ET is also a cognitive skill that is highly developed in our top traders.
Record how comfortable you feel with the ET mode of interaction by circling the most appropriate number below.
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To develop ET skills, I would suggest that you make a list at the end of the day of what you would like to accomplish the next day. Determine the pros and cons of each task and then determine what order the tasks must be accomplished in order to make the most efficient use of your time.
Introverted Feeling (IF). When one uses the IF mode of cognitive processing, one connects with the values and feelings deep within. Your inner values tend to rule your life. They may be personal, abstract (e.g., independence), spiritual, or even mystical. These values tend to strongly connect the person who uses them to what he or she likes and/or dislikes. For example, a person following the IF mode will tend to honor what is within more than what is outside of themselves. Thus, it usually takes IF processing to ignore the crowd and go with a "gut feel" about a trade.
A person for whom IF is highly developed will probably be a very poor systems trader, always preferring to go with internal feelings over external signals. This type of trading would probably only work if the person was so highly trained as to have very accurate internal feelings. In our sample, IF processing showed a negative correlation with trading success and it was seldom dominant among top traders probably because these people are not tuned into what is going on in the market.
Record how comfortable you feel with the IF mode of interaction by circling the most appropriate number below.
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To develop IF skills, I would suggest that you take on a new project and complete it by only doing what you like to do. Consult only your own inner feelings for whether or not you like it. And thus proceed by only doing what you like to do. Avoid any other reasons for doing the project except to say, "I like it." Do not give in to group pressure and do not change your schedule or what you are doing to accommodate others.
Extraverted Feeling (EF). EF processing helps us connect to other human beings. Through it we are able to share their experiences and recognize their intrinsic value. It is a very important ingredient to developing significant human relationships.
EF processing always brings the "human" factor into the decision-making process. For example, EF dominant people tend to strongly adhere to the standards and values of the group to which they belong. Most institutional traders are selected because they have this quality. However, it probably has a negative correlation with successful trading. EF traders tend to be crowd followers. EF people tend to suppress their own needs and desires in order to promote harmony, because relationships tend to be of primary importance for them.
I would expect someone with dominant EF processing to be a poor trader. However, it showed a positive correlation with trading success in our sample. EF processing might be useful if other modes of processing were also highly developed (e.g., ET, IT, EN), because it could help a trader understand what other traders are doing without necessarily influencing how he trades. For example, a trader with highly developed EN skills might come up with some important insights about what is happening in the market. And if those skills are combined with strong ET or IF skills, it could result in excellent trading decisions.
Record how comfortable you feel with the EF mode of interaction by circling the most appropriate number below.
1 2 3 4 5 6 7
To develop EF skills, I would suggest taking on a project in which you continually place the needs and wants of others before your own. Change your plans to accommodate what others want. Take time to "be" with other people and show genuine concern for what is happening in their lives. Also, find ways to give sincere compliments and express your appreciation to others for what they do for you.