CONSCIENTIOUSNESS:

A conscientious person is someone who has a high degree of self-control and perseverance. If you scored higher than 50% in this category you would be classified as a High Conscientiousness Trader. You thrive on having structure in your life and you are very good at following rules. The best kind of trading system for you to have would be a mechanical system which is 100% rule based, leaving no room for guessing. Trading a system that has no rules and is more discretionary based will only frustrate you causing more damage than good in your trading portfolio.

However, if you scored lower than 50% in this category you would be classified as a Low Conscientiousness Trader. You thrive on being able to make decisions based on your gut feel as well as being able to change your mind as you please. Traders who are low in conscientiousness have difficulty following explicit trading rules and they often feel restricted. The best kind of trading system for you is one that is based on discretion. Your ideal trading methodology would focus more on the overall big picture of the markets and does not require detailed rules and analysis to follow. Trying to trade in a highly structured manner with rules will only frustrate you.

NEUROTICISM:

Neuroticism is the tendency to experience negative emotions. If you scored higher than 50% in this category you would be classified as a High Neuroticism Trader. You will often experience more emotional interference in your trading then those who are low in Neuroticism. For example, winning trades can create overconfidence and a string of losing trades can create fear or hesitation when it comes to taking your next trade. This will eventually lead to doubt in yourself and in your trading system, which ultimately leads to poor trading results.

One positive aspect is that traders who are high in neuroticism are emotionally sensitive and can use this sensitivity to obtain a gut feel for market action. However, trying to trade a very active trading system which requires you to get in and out of the markets within short periods of time would be a particular challenge for you, as it does not allow for much time between losing trades to regain emotional equilibrium. This can severely affect your trading psychology, leading to a cascade of losing trades and eventually to significant draw downs in your equity.

If you scored lower than 50% in this category you would be classified as a Low Neuroticism Trader. You tend to not take winning or losing trades personally. You are more likely to react to your trading problems with efforts of problem solving and analysis instead of reacting to them emotionally with fear and hesitation.

Traders who are low in neuroticism may experience little emotional disruption in their trading, but they may also be closed off to subtle, intuitive cues when a trade starts to go sour. Having said that, one positive aspect of being a trader with Low Neuroticism is that you are able to easily push through a string of losing trades without being emotionally affected. On top of that you are easily able to turn those losses around since your individual wins and losses are less likely to be tied to your self-esteem as a trader.

RISK AVERSION:

Someone who is risk averse has the characteristic or preference of trying to avoid a loss in pursuit of making a gain. If you scored higher than 50% in this category you would be classified as a High Risk Averse Trader. You cannot tolerate the possibility of large losses and would rather prefer smaller, more frequent wins with controlled losses as appose to larger wins with greater draw downs. The trading approach that will come most naturally to you would be trading the markets with careful stop losses, good money management and trading the smaller time frames where risk can be controlled with a shorter holding period.

High Risk Averse Traders experience difficulty in hanging onto winning trades for a long period of time and will often cut profits short to avoid potential reversals. You will be challenged during periods of high market volatility. Position sizing is key and often overlooked as a variable to improve trading results as trading too large will overwhelm you and cause you to lose focus.

If you scored lower than 50% in this category you would be classified as a Low Risk Averse Trader. You enjoy stimulation and challenge. Larger positions and longer holding periods are easier for you to tolerate. However, a big challenge of your is controlling and overcoming boredom in your trading. Very often, you will find yourself impulsively entering trades out of boredom when there is low market volatility. This often leads to losing trades and impacts your trading performance. Position sizing is key and often overlooked as a trading variable. Trading too small will bore you, which will lead to a loss in focus and ultimately affect your trading results.

CONCLUSION:

Ultimately it is the blending of these three dimensions of a trader’s personality and not any one in isolation that is most important in shaping your trading outcomes.  In my experience, the traders who have the most work to do in becoming profitable are those that are risk seeking, low in conscientiousness and high in neuroticism. Such traders often take large gambles on impulse, and very often those impulses are driven by emotional frustrations.  An example would be a trader who gets frustrated after a loss and doubles his position size on the next trade just to make the money back quickly.

Conversely, I have seen very few successful traders who were highly risk averse. The risk-averse trader, particularly who is high in neuroticism, is motivated more by a fear of loss than a desire for gain. This makes it difficult to sustain meaningful position sizes during promising trades. Often such traders berate themselves for being self-defeating or sabotaging.

If I had to identify an ideal personality profile for traders, I would say that such a person would be risk-tolerant, low in neuroticism, and high in conscientiousness. Such traders are generally good at following trading rules (entries, exits, money management) and disciplined in their preparation. They do not take losses personally, which gives them the perseverance to weather losing periods. When they see a good trade, they are comfortable trading in size, so that the average size of their wins exceeds that of their losses.

No Matter where you find yourself across the 3 scales of Conscientiousness, Neuroticism and Risk which make up your Trader Profile Type, I believe that anyone can become a profitable trader. For some it will come more naturally and for others it will require a bit more work and effort.