Taking risk and taking losses are two different parts of
trading. Here’s how to manage the emotional side of risktaking.
by Ari Kiev, M.D.
If you think about it, the markets
are a natural laboratory for studying
risktaking behavior, especially
decisionmaking in a volatile,
unpredictable, and uncertain
environment. It is the given
task of the trader to reduce risk
by identifying patterns in sectors,
companies in specific as
well as the marketplace in general.
This can be an extremely difficult task for even the most
sophisticated of traders as we have seen in the past year, due
to not only the turbulence in Asia and the falloff in Russia and
Latin America, but the turmoil in European markets as well.
Not only have traders had to deal with the uncertainty and
the volatility and illiquidity of the markets, they have had to
contend with the psychological consequences of failure and,
in many instances, newly discovered vulnerability. They
have had to deal with loss.