Risk Aversion versus Risk Seeking

Discussion in 'Psychology' started by jbob, Mar 18, 2008.

  1. jbob


    How does your attitude towards risk change as you are in a trade. Everyone always says to cut your losses and ride your winners. However, its human nature/psychology to do the very opposite. Studies have shown that as people with paper losses, become more risk seekers when they actually should become risk averse and exit the losing trade. Additionally, as the average person has a paper gain, they become risk averse when they should be riding their winners and become risk seeking.

    How does anyone utilize these psychological principles in their trading. It would appear that as a trade moves against you, you should either exit ahead of your stop or try to get out at a smaller loss rather than waiting for your hard stop to get hit. I've never had problems taking a stop loss, but that's because I use a tight stop, which is sometimes too tight. Its frustrating to watch the market hit my stop and then turn around. It would perhaps better to increase my stop size, which would keep me out of the noise, but look for an exit if the trade doesn't go in my favor.

    Alternatively, as the trade moves in your favor, you should continue to ride the trade, right? However, the big question is how long? Trends don't last forever, so shouldn't you at some point trail your stop or use profit targets? However, both of those are risk aversion methods. Where's the balance?
  2. ssss


    Dear Sir

    1.First objective and means . To cut risk is no any problem ..
    until 1% on each trade or until 0.1%

    2. See A.Puankare -value of scientific hypothese

    Do you think ,that most operator in retail have a edge
    against monkey.Monkey by equal risk-reward would give
    500 winning trades from 1000

    If most of retail have not the edge (loss through years
    by 95% of all operators)

    which of strategy would best to catch 700% (8 time's)?

    Perform triple in row in casino in black with reinvestment

    Or risk on each trade 10% or 1% ?
  3. If you have analyzed your market's correctly. The market will answer all the questions you have asked.

    Any method someone utilizes to trade only needs to answer the following questions, and the secret lies with the market analysis itself. It tells you all you need to know. If someone does not have the answer to the following questions, than that someone shouldn't be trading it.

    1. entry signal with a confirmation
    2. when to hold or reverse position
    3. when to add or subtract to position
    4. when to exit

    Again, the market will tell someone everything they need to know. Someone just needs to look and ask the questions.
  4. ammo


    phsycology in trading will never go away,it'll trick you so you have to trick it,fight fire with fire, when i'm teeing off on the golf course,(im a duffer) i tell my self , you are on the practice tee, this is one of the 50 balls in the basket you are going to hit,relax and swing, a good trader doesnt think about fuckin up the trade,he's not even doing it for the money,he just wants to keep getting better at the game,so trick youself and say its a paper trade or its just a game,sounds stupid but it works, every trade is slightly different, sort of like golf, so size it up when you get there, all the questions you've asked are about doubt so i think you need to look at your mental outlook
  5. bighog

    bighog Guest

    ammo, You joking right?

    Fight fire with fire...........How in the fuck does that pertain to trading? I gather you are telling us to "TRICK" ourself into thinking a loser is really a winner because we are just playing with monopoly money. Is that what you are trying to tell us?

    Proper setups combined with taking the signal that pings ones brain with feel good is what works..........Thats when the intuitive brain tells you to pull the trigger.......... If you want "tricks" their might be a few in the alley around the corner...........the mkts can not be tricked.......the only trick will be on yourself.
  6. ammo


    it was in response to jbobs question "how does your attitude change once you are in a trade" this fire with fire analogy was to dampen the fear or emotion once you are at risk so you can carry out your "intuitive brain,pull the trigger,proper setup,take the signal" and take the full trade potential or a relax and swing approach and not fuck it up, nowhere did i say think a loser is really a winner