Experience And Dollar-Risk Tolerance Levels by Daryl Guppy
As you gain trading experience, be aware of changes in your
response to risk.
Trading is not an objective; it is a process.
When you begin trading, you may have in
mind some achievement or goal, and once
you reach it, you may feel like an expert.
Unfortunately, this demonstrates significant
misunderstanding of the relationship between trading and skill development. More important, it ignores the
way you develop as a trader. An experienced trader is not just
someone who knows more than a novice; he or she is actually
a different person.
As your skills develop and your experience accumulates, you
tend to change in many ways. Trading solutions that were appropriate when you were a novice may no longer work
well. In addition, personality changes develop in response to
many factors, especially:
• Your trading experience.
• Your maturity level as you grow older and encounter a
broader range of life experiences.
• Lifestyle changes unrelated to trading. This might include
relationship breakups or experiencing a major
trauma such as a car accident.
• Your age. Your general approach to spending money is
different when you are 30 than when you are 60.
All of these factors affect your ability to manage risk with
an effective stop-loss approach. The longer you trade, the
more you will understand that psychology plays a vital part
in your trading success. Your emotions, actions, and experiences
will have interesting and unexpected consequences on your behavior. Some of them are not pretty.
Greed and fear are the basic emotions that trigger
psychological reactions in trading. Trading can
make you more money than you dreamed possible,
and that can be a heady experience. However, fear
becomes an intimate companion when your hardearned
cash is gobbled up in a falling market.
Trading is no roller-coaster ride with a guaranteed