Archives of “risk takers” tag

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Martin, The Risk Takers-Book Review

  
  Education
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Individual traders are often told that they should view their activity as a business. But what exactly does this mean? After all, one business after the other fails; presumably these aren’t the best models. Renee and Don Martin, successful entrepreneurs themselves, come to the rescue with The Risk Takers: 16 Women and Men Share Their Entrepreneurial Strategies for Success (Vanguard Press, 2010). No, it’s not a new book, but I hadn’t read it and I suspect most of you haven’t either.

With two exceptions, the entrepreneurs founded their companies—Curves, Alvarado Construction, Kinko’s, Liz Lange Maternity, Geek Squad, The Corcoran Group, World Wide Technology, Build-A-Bear Workshop, John Paul Mitchell Systems, Spanx, Amy’s Kitchen, Trilogy, Invacare, Tova, The WW Group (Weight Watchers), and (the author’s own) The Cal-Surance Companies.

Many—actually, probably most—of the entrepreneurs were dreadful students. Many went from rags to riches, sometimes back to rags again before they ultimately triumphed, but I won’t recount any of these personal journeys. Rather, I’m going to pull out a few quotations that may have applicability to the trading business, although I’ll point out how some of them can steer the trader wrong. (more…)

Two Types of Traders

  
  Education
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In general, I find there are two kinds of traders. The first kind trades visually, from patterns that are evident on visual inspection. Those include chart patterns, oscillator patterns, Elliott waves, and the like. Their trading decisions are discretionary, in that they elect to buy, hold, and sell based upon their perception of patterns and their judgment as to their meaning.
The second kind of trader distrusts visual inspection. Such traders are more likely to buy into the behavioral finance notion that unaided human perception and judgment are subject to a variety of biases. Accordingly, these traders use some form of historical/statistical analysis and/or system development to test ideas and trade only those that test out in a promising way.
Now here’s the interesting part: The first group of traders almost universally asks me to help them tame their emotions. They have problems with impulsive trading, failing to honor risk limits, failing to take valid signals due to anxiety, etc. The second group of traders, having researched successful strategies, almost universally asks me to help them take maximum advantage of their edge. They want help taking *more* risk and trading larger positions. (more…)

6 Personality Traits and impact upon trading

  
  Education
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* Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control;
* Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations;
* Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret;
* Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors;
* Sensation seeking – The degree to which people seek varied and stimulating experience;
* Type A behavior – The degree to which individuals are driven to achieve.  (more…)

Jack Schwager :Risk & Reward

  
  Education
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“In one experiment, subjects were given a hypothetical choice between a sure $3,000 gain versus an 80 percent chance of a $4,000 gain and a 20 percent chance of not getting anything. The vast majority of people preferred the sure $3000 gain, even though the other alternative had a higher expected gain (0.80 X $4,000 = $3,200). Then they flipped the question around and gave people a choice between a certain loss of $3,000 versus an 80 percent chance of losing $4,000 and a 20 percent chance of not losing anything. In this case, the vast majority chose to gamble and take the 80 percent chance of a $4,000 loss, even though the expected loss would be $3,200.

In both cases, people made irrational choices because they selected the alternative with the worse expected gain or greater expected loss. Why? Because the experiment reflects a quirk in human behavior in regards to risk and gain: people are risk averse when it comes to gains, but risk takers when it comes to avoiding a loss. And this relates very much to trading. It is exactly the quirk in human psychology that causes people to let their losses run and cut their profits short. So the old cliché of let your profits run and cut your losses short is actually the exact opposite of what human nature tends to do.”

How Trader Personality Affects Trading

  
  Education
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A recent pilot study addresses the interesting topic of how a trader’s personality affects his or her trading performance. The researchers focused on six personality traits and their impact upon trading:
* Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control;
* Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations;
* Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret;
* Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors;
* Sensation seeking – The degree to which people seek varied and stimulating experience;
* Type A behavior – The degree to which individuals are driven to achieve.  (more…)

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