AlphaMind Podcast Episode 49 - The Risk Personality Episode (Plus Take a Free Risk Personality Test).

Geoff Trickey, one of the world’s leading experts on Risk Personality, says that ‘personality writes your biography’. He believes that knowing and understanding your risk personality can provide an enormous edge in how you work and the quality of the decisions and choices you make in your work.

Geoff and his team created a new tool for assessing risk personality called 'The Risk Type Compass'.
This tool helps people better understand and make sense of their Risk Personality. Knowing and understanding your risk personality and factoring it how you work can provide a vital edge in your trading. I discuss this more expansively here in an article I published on LinkedIn (view here). 

Podcast Episode Links:
🎧Main Link

The Risk Type Compass (take the test free)

Psychological Consultancy have very kindly offered to allow listeners of the AlphaMind Podcast the opportunity to take the test for free and receive a complementary shorted version of the test report. They can upgrade to receive a longer 10-12 page report of their test for a GBP 35 fee.

The test takes about 10 minutes to complete, after a short registration process. – It is best to take the test in your first language, as this helps with the nuance on some of the questions.

The link for the test is here

The Risk Type Compass Diagram. 

"What is most important is being self-aware enough to recognise your Risk-Type, being comfortable being that Risk-Type, and adopting a style and approach that is complementary to your Risk-Type". 

Some key features of the Risk Type Compass.

As you can see from the diagram above, there are 8 different Risk Types. Each type shares traits with its neighbouring types and could be described loosely as a blend of each of its neighbouring types. The opposite type to each person, would be the type which is 180 degrees across the compass. 

The closer one is to the centre, the milder one is generally in their risk type, the closer to the edge of the compass the stronger they are in displaying the traits of that risk type, and the less flexible they are in relation to that risk type.

We have found that people can succeed wherever they are on The Risk Type Compass. Of the many traders and investors who have taken the test with us, many from leading hedge funds and investment banks, there is not a space on the entire compass where success is more likely. But what we have found does matter, is the degree of self-awareness people have with regard to their risk type, their degree of comfort being that risk-type, and their adoption of  a style and approach to their work, that is complementary to their Risk-Type. 

One of the key points to consider, is that risk personality is fixed. If you took the test 10 years ago, and take the test 10 years from now, there is unlikely to be any significant change in position on the Risk Type Compass. That is why Geoff Trickey says, 'personality writes your biography'.

The Risk Type Compass is used by people and businesses from across the spectrum to understand risk personalities of people in key decision-making roles. Leaders and managers, military personnel, people involved in security professions such as the police, aviation and travel, medicine, sport and any profession or job where the ability to make good decisions in uncertain situations is vital. We just happen to use it for trading and investment. 

We have found are that the closer one is to the top of the Risk Type Compass, generally the more we find one is challenged by uncertainty. By contrast, the closer one is to the lower half, the more tolerant one tends to be of uncertainty. Do not confuse this necessarily through with risk aversion. We sometimes find that people towards the top can be highly risk tolerant when they are working congruently to their risk personality, and towards the lower half, can be highly risk averse, when not working congruently to risk personality.

We also found that towards the left-hand side of the compass people are increasingly comfortable relying on intuition and gut feel. Though logic is still a big part of their process, but they generally need less data points or evidence to make a choice. Towards the right side of the compass we find that people prefer to have more evidence, and whilst they are capable of making intuitive decisions, they seem prefer a high degree of evidence and data to support their choices. 

Trading Context Description of Each Risk Type:
The Wary type is generally shrewd, vigilant, controlling. In trading and investment situations, ‘less is more’ is usually part of their doctrine. They tend to be defensive, planned, and strong on risk-management. They are very ‘detective’ like, they love the puzzle of the markets. This passion for the puzzle means they will dig through lots of information to find insights and clues as to where markets are heading. These types of traders tend to avoid volatility, and have a strong dislike to uncertainty. As such they may will normally chase highly asymmetric risks, and can produce high risk-adjusted returns, however this can be tempered by being relatively low utilisers of risk capital. Steeping back from the detail and seeing the big picture is often one of their growing edges. 

The Prudent type is generally systematic, orthodox, detailed. In trading and investment situations we see them being very methodical. They tend to be good system builders, though not necessarily creative. Given a plan, they like to stick to it. They like the emotion stripped out the decision-making process as much as possible. They do not mind large risks, but struggle with volatility, for that reasons they may often prefer spread/relative value approaches which use high levels of capital for relatively low returns. This type likes a lot on data points before acting, and will thus be late into a move, but are usually very strong on risk management. A tendency to not seek perfection before engaging in risk is often one of their typical growing edges.

The Deliberate type is generally analytical, investigative, business-like. In trading and investment situations think ‘air-traffic controllers’. They are very focused, not easily distracted, follow rules and established practices. In volatile dynamic situations they are likely to remain calm, calculated and not easily flustered. They tend to like a lot of evidence before acting, which means they may be late into trades, but when they do enter, they have done their homework. On the other hand, they can be slow to change or react to new situations, which can have consequences on the other side. Being more willing to trust their instincts and not have all the boxes ticked in terms of risk is one of their typical growing edges.

The Composed type is generally calm, resilient, optimistic. They are strangers to anxiety and often dispassionate in their decision making, thus they deal well with stress and volatility. They can be confident and can stand back well from the noise and fray without being influenced by it. On the other hand, they are not always sensitive to the detail and sometimes can be too optimistic for a given situation or lacking sensitivity to small but important changes and signals. We often find them running large portfolios of products, option portfolios or portfolio or exotic/complex products in low liquidity markets and situations where the ability to stay their hand during periods of volatility is advantageous.  Being more sensitive to nuance and pairing back optimism to more realistic levels would be amongst their typical growing edges.

The Adventurous type is generally intrepid, enterprising, undaunted. Not surprisingly this type is the type most likely to be described as entrepreneurial. The Adventurous type are often big-picture thinkers, who often see the whole matrix, but may risk missing some of the detail within it. They tend to be confident, they like the excitement of markets and tend to see opportunity where others see fear. However, they may dislike being boundaried or rule bound, particularly when it comes to risk-taking, which can be their un-doing. This type can keep many plates spinning at once, which makes them good at long-term trading, and holding multiple positions and large portfolios. Becoming more detail orientated around risk is one of their typical growing edges, as can be paring back some of their optimism to more realistic levels. 

The Carefree type is generally audacious, curious, unconventional. This type is often creative and drawn toward novelty. Their daringness can make them a stranger to worry or concern, and they will try things others are not willing to. We often see them being the first into a new move or trend. However, the risk is they may be in too early, or it may not be a new trend, merely a correction. Also, their lack of structure may mean their risk management is weak when they are wrong. This type may be great designers of systems and process but may sometimes lack the rigid planning and structure needed to operate within them. Adapting to more structured approach to matters around risk management is 
one of their typical growing edges. 

The Excitable type is generally enthusiastic, anxious, committed. We see them attracted to the excitement and buzz of the market. This can make them highly enthusiastic and intuitive. They are excited by ideas and opportunities however being sensitive to risk and setbacks they tend not to get carried away by this. We tend to see this type thrive in highly liquid fast markets, but struggle when there is a lack of activity or direction. They are highly responsive to new news, and may make outstanding event type traders, however they may lose their advantage when running longer-term risk. Adapting to a more structured approach, and becoming more disciplined, is one of their typical growing edges. 

The Intense type is generally apprehensive, risk aware, passionate. This type is highly enthusiastic and committed to whatever they are doing but are also highly alert to setbacks and the fear of things going wrong.which can make them prone to bouts of self-doubt. This type is outstanding at seeing and feelings patterns in the markets that others are not. When they fully leverage these capabilities, they can produce excellent risk reward opportunities. However, these same abilities are often of little value to longer-term risk, and tends to suit a highly tactical approach, rather than a strategic approach. Developing self-trust and letting go of the need for approval from the market, as a proxy for others, is one of their typical growing edges. 

The Axial Zone on the Risk Type Compass represents a neutral zone where people do not show a strong attachment to any type of risk personality. They are generally flexible and more adaptive to risk approaches, seeing the benefits and flaws in all approaches. They seem to have less attachment to particularly views or methods, this can be highly valuable as they flex to market changes quicker than other risk-types. They also have the ability to hold multiple styles. Their balanced less nuanced attitudes can be highly useful; however, they may lack some of the edges which are characteristic of people of more extreme in each type. Being more decisive
is one of their typical growing edges. 

Podcast Episode Links:
🎧Main Link

You can find out more about the Risk Type Compass at the Psychological Consultancy website here.

The AlphaMind Podcast

The AlphaMind podcast is co-hosted by Steven Goldstein and Mark Randall, market veterans with over seven decades between them in the financial markets. The podcast delves into the lives and stories of extraordinary guests whose experiences provide a fresh and powerful lens through which to understand the mental, emotional, psychological and behavioural challenges people face when encountering risk and uncertainty in financial markets. To find out more visit the AlphaMind podcast website. The AlphaMind Podcast is produced in partnership with 'The Society of Technical Analysts'.

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