By definition, active traders and investors have some degree of Risk Seeking built into their personality, or they wouldn’t be so interested in the markets. Instead, they would be satisfied with their day job.
Individuals who follow the market closely and get involved with it on a daily basis usually need the stimulation and challenge that comes from wrestling with the unpredictable Wall Street beast.
That said, within this group, there are two fairly distinct categories: those who lean more toward Risk Aversion and those who are full-on active Risk Seekers. This division is not accidental; there is actually a gene that controls these tendencies.
RISK AVERSE TRADERS
Risk Averse traders tend to come to trading from careers where being right is an imperative and mistakes are very costly. Engineering and accounting are the two most common professions that breed Risk Averse traders. These folks never lose much, but they can stay stuck around breakeven for years while they continually tweak their system.
RISK SEEKERS
Their counterparts are full-on Risk Seekers who secretly love the excitement of trading. Some of these folks really do trade for entertainment, although they would strongly deny it. When Risk Seekers sit down at their trading desk in the morning, they are usually in a trade within 5 minutes, whether or not their entry criteria were ever met. They just want to be involved… so they improvise on the spot.
Unfortunately, Risk Seekers tend to go “all-in” at the worst possible times and get caught in boom-bust cycles over and over. The recent volatility in the Nasdaq, for example, is particularly dangerous for Risk Seekers because they will be drawn to ride every wave and many will drown.
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RISK PROFILE
I’ve developed a short self-assessment that can help traders determine whether they have potentially dangerous risk-taking tendencies. You can take my free risk profile by filling out a short form. Afterwards, you may also contact me for a free 15 minute consultation to discuss your results. Traders tend to isolate. If that’s true for you, I’m sure you will benefit from having someone to chat with about your trading. And there’s no obligation.
Kenneth Reid, Ph.D. Daytradingpsychology.com
Related Reading
The 5 Trader Personality Types: Which One Are You by Kenneth Reid
