We all need to be disciplined along with using good money and risk management skills, yet too much of anything can cause problems. Sometimes we put so much attention on caution to ensure that we only make good trades that we reduce our actions to the point that we miss so many strong trading opportunities. Every time we begin our trading sessions, we need to communicate to ourselves that we will be confident, prepared and most importantly… committed to executing trades when our analysis shows that a good trade is in front of us. Never allow the market, the news, your friends, your past trading session or anything else send you a false signal that causes you to sit back and do nothing when you can easily see from your training that you should execute a trade right now. |
Archives of “risk management skills” tag
rssBook Review- The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust
Traders should be unemotional. No, traders should tap into their emotions and use these emotions as trading inputs. The debate rages on, mostly at the level of pop psychology, rarely rising to a level that is even quasi-scientific.
John Coates, a senior research fellow in neuroscience and finance at the University of Cambridge who previously worked for Goldman Sachs and ran a trading desk for Deutsche Bank, changes all this—or so one would hope. The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust (Penguin Press, 2012) is a compelling narrative of the links between biology and the trading floor. It’s one of the most intriguing books I’ve read in a long time.
Coates’s previously published research papers offer a glimpse into this book, but no more than a glimpse. Let’s start with the title, a French expression meaning literally dusk, when the light is so dim that you can’t distinguish a dog from a wolf. More subtly and aptly, according to the website Naked Translations, “it also expresses that limit between the familiar, the comfortable versus the unknown and the dangerous… It is an uncertain threshold between hope and fear.”
Traders live in the gloaming, and their bodies (and consequently their risk management skills) respond accordingly. They spend a good part of their day faced with novelty, uncertainty, and uncontrollability—“three types of situation [that] signal threat and elicit a massive physiological stress response.” (p. 217) If markets are more or less normal, traders can usually handle this stress because it is moderate and exists over a short period of time. If, however, stress goes on for an extended period of time, this chronic exposure can impair their cognitive and physical performance. (more…)