What’s Your Trading Risk Type?

Research suggests that the financial traders in the Wary Risk Type are highly risk averse and prefer short-term trading, employing a highly tactical approach. In contrast, the Adventurous Risk Type is less analytical with a tendency towards big-picture thinking and a strategic longer-term approach.

Which Type are you?

The Risk Type Compass

The Risk Type Compass is the first tool of its kind to identify the spectrum of risk dispositions that drive perception of risk, reaction to risk and willingness to take risks – a consistent and pervasive bias in investment decision-making.

Uniquely, it is based on the Five Factor Model of personality and distinguishes between Risk Attitude, which can vary over time, and Risk Personality, which is based on individual characteristics that remain fairly stable over the course of a lifetime.

Using Risk Type to Improve Your Trading Performance

Through increasing self-awareness of your Risk Type you can:

  • Understand more about your natural skills, capabilities and blind-spots;
  • Capitalise on your strengths and manage your weaknesses, giving you greater confidence to execute at the right time and to know when to avoid or pull back in situations;
  • Adopt trading strategies and tactics that work with the natural grain of your personality and avoid those that create stress and sub-optimal performance;
  • Build a more robust trading approach.

How Has Risk Type Compass Helped Financial Traders?

Using the Risk Type Compass to raise self-awareness during a course of coaching sessions at a trading company has led to dramatic increases in trading performance. A trader at a Tier 1 investment bank boosted trading performance by $6.4 million over one year, while a portfolio manager at a macro hedge fund made as much as $144 million over three years, following coaching based on his specific Risk Type.

Watch Steven Goldstein’s webinar to explore these successes in more detail.

Risk Type, Risk Attitude & Risk Behaviour

Risk Type

The Risk Type Compass assessment places you in one of eight distinctive Risk Types. Your Risk Type reflects your natural temperament: to what extent you are, for example, naturally adventurous and optimistic as opposed to being cautious and anxious about uncertainty; or, to what extent you plan things carefully as opposed to acting on impulse.

Risk Type is deeply rooted and has a broad influence on how much risk you are willing to take, how much uncertainty you can cope with, and how you react when things go wrong.

Risk Attitude

Risk Attitude is focused on the effects of life experience and your personal circumstances and how these also contribute to your risk-taking behaviour. Risk Attitude may vary from situation to situation and is very context specific: for example, previous trading successes or failures would influence the degree of trading risk you are willing to take.

Risk Behaviour

Taken together, consideration of your Risk Type and Risk Attitude will guide you to a better understanding of your current appetite for trading risk. You can learn to manage your underlying risk disposition using a thorough understanding of your Risk Type, and your Risk Attitude provides insight into how your past experiences are shaping your current decisions.

It’s very exciting to see how different Risk Types not only trade different markets but adopt different styles – structured analysis for the risk averse, and free-wheeling for the risk takers. I can definitely relate to that.

Scott Henderson

Trader

Trading success is not necessarily more likely to be found among any particular Risk Type. What matters is to match your trading style and approach to your Type.

Steven Goldstein

Trading Performance Coach

How Understanding Risk Type Can Impact Trader Performance

For further details on how an understanding of Risk Type can impact trader performance, watch our webinar here. Geoff Trickey, PCL’s Managing Director, and Steven Goldstein, a coach specialising in financial market risk, discuss how different trading roles typically attract different Risk Types and how an understanding of your own risk disposition can help to enhance trading performance.