What kind of work you do would prefer: the one on which a stable pay a small salary or the one whose salary is not high, but fragile? The answer to this question will allow you to define your preferences and risk tolerance. Most practitioners of short-term traders would not mind to abandon the security and stability in favor of higher wages. In comparison with conventional short-term trading jobs — a very risky proposition. Thus, if you do not learn to tolerate risk, you’ll feel too much excitement and anxiety during trading.
Scientists have conducted a series of studies to determine the predisposition of people to take risks. People with a high level of risk tolerance is generally older and more educated. Investors who have received their money in the inheritance, or trading other peoples’ money, as well as those who have a profitable low or average, tend to avoid risks.
In addition to demographic characteristics, your personal traits may also be associated with risk tolerance. Search feelings — it’s a personal trait that may have some of the predetermine the desire to experience risk. This term was coined by psychologist Marvin Zuckerman. Zuckerman believes that the search for sensation is a strong need for diverse, new and complex sensations and experiences. This need is sometimes so strong that people who are looking for sensations are often at risk of physical or social level only in order to get this experience. Sensation seekers often experience boredom, so seek new means to overcome it. Search feelings — not necessarily a bad trait. In fact, a moderate level of this desire in a specific context can bring tangible benefits. Such people often think and act non-template.
They are not afraid to acquire new experience and usually original and creative. They often make new discoveries or discover America. This feature them can be extremely useful in commerce, where independent decisions and the ability not to run after the crowd are the key factors for success. Traders who want to get new and interesting experience, less susceptible to stress arising from the uncertain market conditions or uncertainty of the results of a new trading method. Thus, at a minimum level search sensations helps to adapt to the markets. However, in its radical form, this feature can be a problem. For example, when it comes to trade, search for sensations are often accompanied by a lack of discipline, risk taking impulsive decisions. However, the transaction must be performed calmly and rationally. A person affected by the search for sensations may enter into transactions for the sake of excitement, he often becomes boring to monitor the deal, so he takes an impulsive decision to fight the boredom. Scientific studies have shown that personnel with high-risk search sensations enjoy gambling, they make higher rates than personalities with a low tolerance for risk. They do this only in order to experience arousal. Useless risks often lead to disasters in trading.
Many wise traders are taking a risk, but have the discipline to develop sales plans and correctly assess the risks. This was written in his study, published in «Bihevioristicheskom financial magazine» Filbek, Hatfield and Croatia. For example, although the traditional belief states that have easy adaptability of people who can act spontaneously easier to cope with the risks, these authors found that those people who are more organized and plan their actions and not act on a whim, often prefer risky investments. People with higher risk tolerance and prefer an objective style of decision-making and the logic of subjective experience. The more they have the opportunity to thoroughly analyze the situation and determine the level of risk, the calmer they feel afterwards. In other words, if you know exactly what you risk prior to the opening position and accept this risk, the easier it is to you then psychologically manage the risk.
It is important to know how well you can manage risk. Whether you are looking risk, are afraid of it or take it? It is useful to know the answer to this question.