Personality Case Study: Linda Raschke
Linda Raschke began her full-time professional trading career in 1981, as a market maker in equity options. She began on the floor at the Pacific Coast Stock Exchange and later moved to the Philadelphia Stock Exchange. Although Raschke is probably best known as a short-term S&P 500 futures trader, she is actually active in several time frames, markets, and trading styles.
From 1982 to the present, Linda has been an independent, self-employed trader of equities, options, and futures. Since 1993 she has been a CTA (commodity trading advisor) trading futures. She has also managed commercial hedging programs in the metals markets. As a CTA she currently manages the Granat Fund. In 2009 Granat was ranked as the seventeenth best in terms of five-year performance, out of 4,500 hedge funds by BarclayHedge.
Linda breaks her trading down like this: 45 percent day trading, 45 percent short-term trading (2 to 5 days), and 10 percent intermediate trading (5 to 30 days). She spends on average 50 to 60 hours devoted to trading the markets each week, and during an average week she makes about 30 to 50 trades in the markets.
In our studies of highly successful traders, we found low anxiety (N1) and low vulnerability (N6) to be the norm. Linda exemplifies this point. She scored in the very low range on both of these N facets. These were the only two N facets that she scored in the very low range. We asked her about this.
Since I was young, I was very good at being single-minded and focused. My mom often accused me of being emotionally aloof and distant. From a young age I was very independent, being the oldest of four children, and learned to be self-sufficient early on. I had a very thick skin. I think one is born with these kinds of aspects. And I have learned that I have to be careful on the other end of the extreme from what most traders face. I have to take care to not be too emotionally down-regulated. It’s probably beneficial to be a bit on the edge; it adds intensity. But I have to work on it; I have to take care not to be totally shut down emotionally. To be honest, I am very conscious of it.
There is always discussion and even debate among traders and psychologists as to whether women make better traders (or not), and if so, why so. Our research was not designed to directly answer this question per se. What it was designed to do, however, was assess whether the same traits that make for a successful male trader also make for a profitable female trader. The answer from our set of data seems to be yes—that low neuroticism (especially when it comes to the components of anxiety and vulnerability) is what matters most, regardless of whether you have one or two X chromosomes.
Keep in mind that the NEO-AC assesses the same 30 facets of personality in both men and women, and both genders answer exactly the same questions on the NEO-AC test. Historically speaking, large population data show that there are some differences in personality between the sexes (no kidding!), and it’s for this reason that the adult norm scores on the NEO-AC are separate for men and women (the test has a scale for women and a scale for men). The main difference between the genders is that women tend to be somewhat more neurotic (N) and more agreeable (A) than men. It is noteworthy that Linda, a successful trader, fits the “perfect trader” personality profile, as one would expect from any great trader, male or female. Bottom line: Linda scores very low on both the N1 and N6 facets, her gender notwithstanding.
Our findings, that low N1 and N6 are vital to successful trading, may in fact indicate that men, at least based on personality traits alone, have the upper hand at successful trading, though certainly this still needs to be studied more, and I am not going to utter another word, over fear of putting my foot in my mouth!
Next, Linda has a low C2 score, which again indicates she would be well suited to the life of a discretionary trader. Here is what she had to say about it:
I started trading on the floor of the stock exchange. There was no such thing as mechanical trading down there—it was always so dynamic and ever-changing. But it was also tedious at times being down there. Some people think floor trading is glamorous. It’s not. Sure, there were some good days, even super good days. But there were a lot of boring days and days filled with grief as well. I traded on the floor for five years until I had an accident and hurt my shoulder. At that point I could no longer trade on the floor. So I started trading from upstairs at my clearing firm and eventually transitioned to trading from my house. But all the while I remained a discretionary trader, since we did not have computers when I first started trading.
Things were pretty primitive when I first started trading from home. I had always subscribed to Security Market Research charts when I was on the floor and used to update the charts by hand as well as plot the daily oscillator readings. But I was also an excellent tape reader and good at monitoring the market internals. I was very much hands-on from the get-go.
Very few systems hold up over time. Most will deteriorate. If they didn’t, everyone would be trading them. Two that I do believe in are volatility breakout systems and trend following systems. Unfortunately it is difficult to move much size on volatility breakout systems, and trend following approaches can have steep drawdowns—well beyond what I can. So I don’t like trading systems. I never have.
Linda’s words make an interesting contrast from what KD Angle had to tell us (see preceding chapter), how he has used the same two trading systems for many years without having to tweak them once. This really goes to show that you have to match your trading style to your personality and that trading is not one size fits all!
Here is what Linda has to say about her motivations and reasons for trading the markets:
I don’t sit there and look at the money side of it. I know intuitively if I am up or down for the day, or maybe the month. But I have always found that I do better trading the markets if I do not keep looking at my performance. It’s odd, because what I teach other traders is to have careful record-keeping skills and to monitor their profits and losses carefully. I did this diligently for the first 12 years I traded, but now I don’t pay as much attention to the money side because I just know intuitively. I try to stay focused on the process instead. I can remember once in the spring of 1987 looking at new highs in my P and L and feeling pleased, and it ended up being the kiss of death as I did not take out those equity highs for another six months. New highs in the P and L lead to complacency and dropping of the guard so I learned that for me it only counts when it is the end of the month.
Actually, I think this makes perfect sense for Linda, given her low C facet scores. She goes on:
I think I trade because I wouldn’t know what else to do. I have no other skills, really. I wouldn’t know how to make a living doing anything else other than trade. Also, it is fun to play a game when you know you can win at it on a regular basis. When I was 10 years old, I always won at Monopoly, so I liked playing Monopoly. The same thing goes with trading. I am good at it, so I like to do it.
I asked her if mastering the markets is an important concept to her, as it is to many of the other traders I talked with. Her reply:
No, I don’t think that’s quite it. Although I want to master the markets, another side of me says I’ll never really be able to master them. Let me put it this way: I have noticed that my ability to focus while trading has diminished a bit compared to 15 years ago. I have had a lot more distractions the past few years. I know the game of trading better than I ever did when I was younger, but I find that today the markets are 24/7 with global capital flows and thus are more demanding. Right now my challenge is to keep my mental edge sharp and keep up with my prior performance. That’s my motivation for trading today.
On some other telling facets of the NEO-AC (O1, O2, O3, O5, and E6), Linda scores either high or very high. What we have found from interviewing traders is that being able to take in multiple concepts, sort them out, make sense of them, and apply them to the markets are very important. This multitasking and amalgamating of various concepts and applying them to a rapidly changing system, such as a stock or futures market, is what it takes. And it is especially huge for discretionary traders like Linda. (For instance, as you may recall, we saw this same pattern in my father’s personality profile.)
I think I have an ability to pick up on the concepts of historical figures and put them in terms that other people can relate to and make use of. I think I have a real skill there. I feel that I have come up with a lot of original concepts pertaining to price behavior as well.
Combining her N and O scores, Linda is a prime example of how the best investors/traders are able to multitask under pressure, all the while managing their emotional urges. Even though they may hold a particular trading style or philosophy, which they remain consistent with, they remain open to new ideas and adaptation. They are comfortable with change and improvisation and are always looking to expand on trading concepts.