Successful traders are neither risk averse or wreck less risk takers, they assess risk and take trades according to a favorable risk reward. They know when to assume risk and when to avert it, so they are both.
For certain successful traders are more leaders than followers because they think for themselves. Can you imagine Jesse Livermore, Paul Tudor Jones or George Soros being a follower in their thinking process or succumb to group think and people pleasing?
Probably more important than anything is that successful traders have enough mental/emotional discipline to capture their edge with the most constancy in their execution... day in and day out, trade after trade to achieve the most consistent results..
BTW - Typically, trading psychology only applies to discretionary traders and not to mechanical methods. For a discretionary trader, there are always trades on both sides of the market ALWAYS.. the side that is preferred can often depend on how the trader is seeing.. Psychology absolutely comes into play. In fact, it goes beyond psychology because it includes the integration of your thoughts, perceptions, emotions with your method.. distortion comes easily.. Not the case for mechanical..
Last edited by Jedi; February 22nd, 2013 at 06:02 PM.
You need to know when to hold me and when to fold em and be very good at ignoring the trades that do not have a very favorable risk reward. But we know all of that. What gives us a favorable risk reward?
That depends on your method and the edge you're trying to capture. There are many different ways to do this.. I've seen successful traders use methods that don't resemble each other in the slightest but they're all accomplished traders in their own right. I suppose the key is to be true to your edge to capture the maximum constancy the edge offers..
I strongly disagree.
As I explained, risk takers are willing to bet even when the odds are against them. (Like in casinos).
The difference in trading to roulette is as you said that in roulette the probabilities are known and in trading they are assumed and subjective.
If they were known then no trading could take place!
You can argue that you don't believe in backtesting (the only possibility to get probabilities in trading).
Then its like you're saying that you don't believe in technical analysis and thats OK.
If you are trading with odds against you, then just call out your trades and I will take the opposite side.
Risk reward for it self is worthless. The measurement should be positive expectancy. Which is risk/reward with win%.
Who is more likely to be a successful trader? A risk taker, or a risk averse person?
*I think in the long term, risk averse....but short term, a risk taker could make a much larger amount
Are you more likely to be a leader vs follower if you fall into one of the risk categories? If so which one? For example, if you are a risk taker does that automatically make you a leader? And if you are risk averse, does that automatically make you a follower?
*don't think so generally speaking.
Who is more likely to be a successful trader? A leader or a follower?
*no idea, but i'd risk 15 ticks on the follower....
That's the idea but THE MARKET ONLY GIVES SO MUCH EDGE.. so every trader takes plenty of loosing trades.. All traders are paid to take risks so how can they be "risk averse" unless risk averse is defined as "risk management" then it goes without saying.. that "successful traders manage risk" so I wouldn't assume that was the question..
As far as leader or follower, I agree that it doesn't necessarily correlate with risk appetite but I do believe there is some correlation in other aspects. Successful traders clearly don't lead people as trading is an individual endeavor and not a team endeavor. If you were a successful leader of people, there's obviously no guarantee you'll be a successful trader because trading does not require people skills but INNER SKILLS.. The reason I say successful traders are more "likely" to be leaders than followers is because a follower does not think for themselves and are easily influenced by others and by factors outside of themselves. That is not a helpful trait in trading BECAUSE the market is designed to fool the majority by presentation. If a trader is easily swayed by outside factors, they are likely to be easily swayed by the market's inducements for fear and greed as well as a slew of other emotions that plays with our minds..
Successful traders have a combination of qualities that work in unison and I call it "trading spirituality" because its really a combination of many qualities integrated into the way they perceive and behave.. Most just call it "discipline" which really consists of a lot more than that because its a combination of qualities such as "self awareness, self control in thoughts, emotions, decisions, actions, objectivity, trust, courage, prudence, preparation, anticipation and etc......" and many many more..
That's why I usually say a successful trader can't really give away his edge because there is only so much edge the market offers any trader.. A good example is if you took a whole bunch of traders from trading forums and put them together with legends like Jesse Livermore, PTJ or Soros and etc, and put them in a trading contest.. the better traders cannot be distinguished in 1 day, and maybe not even in 1 week because there is a random aspect to the markets and trading.. HOWEVER, give it a month and a year? Everything comes out and its not likely because the legends have a much better method, but they are more comprehensive in the way they apply their method by the integration of all the qualities listed above and more, which are often absent in less successful traders.. trading communities call it "discipline." but its really so much more than just that.. I like to call it trading "spirituality" because it seems to be best described as the relationship and trust the trader has with market truisms behind the short term random behaviors of market dynamics..