Psychology and Risk Management
• What to expect
• Risks
• Position sizing
• illusion of control
• Accepting critisism
• Paralyzed by fear
• Loss is a feedback, not a failure
• The flexible trader
• Focusing on the positive
• Short straddle
• The dynamics of greed
• The herd mentality
• Notes
Being flexible is essential for traders. One must be able to approach a trade issue from various angles in a collected, logical, and perceptive manner. Have you ever noticed that you struggle to think properly when you are under a lot of pressure? Your focus could become limited and entrenched, making it challenging to consider alternate viewpoints. It’s helpful to assess your level of flexibility; if you discover that you lack it, recognise it and make changes to your surroundings to foster a more adaptable approach to problem-solving.
For traders, flexibility is key. A trade issue needs to be approached from a variety of perspectives in a calm, logical, and insightful way. Have you ever observed that when you are under a lot of strain, it is difficult for you to think clearly? Your concentration could narrow and harden, making it difficult to examine alternative points of view. It’s useful to evaluate your level of flexibility. If you find that you don’t have enough of it, acknowledge it and take steps to alter your environment. This will help you develop a more flexible approach to problem-solving.
Although it is clear in hindsight, it might have been challenging to understand if you didn’t already know the solution. Actually, only the most brilliant people can correctly answer such a discriminating question.
It requires intellectual adaptability to respond to the question regarding the fly and the tree. It’s fascinating to watch extremely smart, adaptable individuals respond to the question. It seems as if they don’t give a damn. They exude tremendous confidence and appear to be circling the question, “What might it be?” They then appear to shrug their shoulders and speculate, “They are both living creatures,” before continuing. When it is revealed that they arrived at the right solution, they are taken aback.
Flexible people approach puzzle solving in a very casual and unhurried manner. They don’t put themselves under undue pressure or risk their self-esteem. They simply consider all of the possibilities, unwind, and come up with any response as long as it is at least partly logical. When necessary, they know how to simplify, and they also know when to explore for sophisticated solutions.
It’s crucial that you traders find flexible solutions to trading issues. You may create an environment that encourages a flexible way of thinking. Don’t put too much strain on yourself, for instance.
If you need to make a difficult choice, wait until you can do so while being composed and objective. (If doing so requires closing out the position, go ahead.) Find a tranquil and soothing location to do your thinking since pressure or stress can make you more rigid. (This could entail much planning ahead of time since the markets can be highly tense after the opening bell.) Don’t overburden yourself, as well. Don’t convince yourself you have to get the answer correct or it will show you are a bad trader, putting your self-esteem at risk.
Flexibility does not thrive under pressure like that.
The secret to successful trading is flexibility. You can be more adaptable and find solutions to important trading issues by choosing the suitable surroundings and adopting the appropriate mentality.