Men and Women Have Different Trading Styles

Let's talk about sex, shall we?

There, thought that would get your attention. Ok, sorry, nothing even remotely Game of Thrones like here...

Did you know sex hormones are often responsible for traders losing it if they’re men (sorry lads)? They lie behind some of the most risky stock market behaviour.

High testosterone levels in men have been shown to make them confident and successful in competitive situations. Previous research has shown that male traders make significantly higher profits on days when their morning testosterone levels are above their daily average.

In a test scientists  measured natural levels of the  hormones in 142 male and female volunteers while they played a trading game in groups of ten.

Men who had higher levels of the hormone cortisol were more likely to take risks, which led to instability in prices.

But there did not appear to be a link between cortisol and risky trading in the women who took part, which is consistent with other research showing that women respond to stress in different ways.

Cortisol appeared to encourage riskier investments, while testosterone increased the feeling that they were on a winning streak.

Put it another way: women are much safer and often better traders than men.

So ego-fuelled men reading this (yes, YOU!), women do tend to make better traders and investors.

Above all this is because women are more likely to let losing trades go. This is perhaps not a surprise as they tend to be better at cutting a relationship that’s a bit of a loser. (I have been on the end of that!)

Women traders tell me they just can’t cope with the thought of something running into a big loss. Generally if I’m in a room of traders and ask “Who is holding a trade with a loss of more than 25%?” you can guarantee most of the men put their hand up. The women? Rarely.

However – and here is where I can stick up for the blokes – men do tend to be better at letting profits run than women. Men seem to enjoy the delayed gratification of waiting for the profits to build.

Here is top trader Alexander Elder with his thoughts on women traders:

“Women traders, are much more likely to ask a simple question: Where’s the money? They like to take profits and avoid losses instead of trying to prove themselves right. Women are more likely to bend with the wind and go with the flow, catch trends, and hop off a little earlier, booking profits.

“When I tell traders that keeping records is a hugely important aspect of success, women are more likely to keep them than men. If you are looking to hire a trader, all other factors being equal, I’d recommend looking for a woman.”

Mr Elder  confirms my view that women are excellent loss takers, though they could try and run the profits further.

He also points out that women are much better at keeping records, which helps their success too. That’s true: one of the best female traders I know keeps immaculate records. She knows all her buy and sell points, stops, she even keeps track of her performances using a chart she calls her “equity curve”.

(She also goes to meetings with CEOs and only buys if their shoes have been carefully looked after and fully buffed.)

She finds all that very helpful. Personally I struggle with that kind of thing.

One excellent female trader  shared her thoughts with me.    She has some excellent insight into the advantages and disadvantages of sex as a trader:

“We women like a stash of cash for a rainy day. Nothing like a good hoard to cheer me up. Generally that really helps me get out of trades early because I tend to use tight stops and I don’t have too much of a problem taking a loss.

“Letting profits run is another matter and here I still struggle. Honestly I think it requires a much bigger psychological shift than learning to cut and run. There is a great temptation once a share is slightly in profit to take the money and clear off to the nearest shoe shop. The problem is you end up forever trading and never making serious money.

“Taking a loss, though hard, opens a script in my head which is about getting it wrong, being rubbish at stock picking, doing badly while everyone else is coining it and so on. Though painful, it is familiar and therefore I am biased towards it – a lovely bit of self-sabotage if ever there was one. I bet a lot of other people are the same.

“Letting profits run is about delayed gratification, being bold and maybe being successful – stepping into a brave new world. That’s a very different script to have running in your head and I feel really uncomfortable with it. I haven’t mastered it yet.”

So what's the conclusion here?

We have to marry the two: men and women’s best bits in a lovely marriage – cut the loss, run the profit.