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I think some people that believe they are Risk Adverse while others viewing what they did would think they are Risk Seeking.
I believe that I am following good money management rules and carefully trading limited size in relationship to account size, yet the very fact that I risked my savings in an attempt to turn trading into a fulltime career probably puts me into the Risk Seeking category.
Trading: Index and Stock options, Stocks (seldom), Nadex (just starting), Forex
Posts: 33 since Oct 2012
Thanks Given: 47
Thanks Received: 26
Like Dead Cat Bounced, I am a risk defined trader. Money management is key to long term success. However, without any risk there is no reward. People thinking their money is safe in a savings account are loosing money to inflation but they feel safe. Investor / trader education should bring enough knowledge of markets, strategies and money management to increase the confidence to risk more to make more. Big Thanks to Big Mike's Community for sharing this knowledge!
I picked 'risk seeking' because I know I can't control my own behaviour, still a work in progress. I would also like to have picked 'I use heuristics to survive in an uncertain world because we can only pretend to live in a probabilistic one'.
I said Risk Seeking because you need to take risks to make money. I'm not a risk junkie though, and I manage my risks, but I also realize risk = opportunity to exploit my edges so I seek them out.
I already tried to explain what risk adverse/seek/neutral means.
I see that people still don't understand, so I'll try again.
First from wikipedia:
In simple words risk seeking - when you want to take a bet with negative outcome. For example betting on coin flip with RR > 1. (You get 10 if you are right and you pay 11 or more if you are wrong)
Risk neutral - when you are ready to take neutral bets. For example betting on coin flip with RR = 1. (You get 10 if you are right and you pay 10 if you are wrong)
Risk adverse - when you are ready to take bets only when they are (or in trading you think they are) in your favor. For example betting on coin flip with RR < 1. (You get 10 if you are right and you pay 9 or less if you are wrong).
I wish I could see a correlation chart between the number of people who selected 'risk averse' with the size of their stops and targets (ie if they define themselves as a scalper).
It is my gut feeling that most people selecting 'risk averse' are the same group that are trying to trade a highly volatile market like CL with a 5 tick stop.
I even saw one journal recently where someone made 150 trades in one market in one day. And you can probably guess, it was a massive losing day and I think that was even before commissions were calculated.
There seems to be a real disconnect when people define risk, they'll say they are "risk averse" but yet their actions demonstrate they are making poor decisions and inherently very risky decisions when viewed from a more macro perspective.
I believe that risk is bigger then most traders think. Most people are concerned about 1:1+ risk/reward ratio on their individual trades. To me the biggest way I limit risk is by limiting my exposure (number of trades). To me it is better to have a good solid trade ($100+/contract) a day then it is to scalp for a few ticks per trade and take 100+ trades a day.
You are only exposed to your risk when you enter the market. You determine that risk per trade, and then per day by the quantity of your trades. If you take 100 trades in the NQ with a 2 PT stop you are risking 200 PTs a day ($4000).
I would say that I am risk seeking and risk adverse. Both have their place. You have to seek risk to make money, but you choose when to seek the risk. By limiting how and when you seek risk, you can actually be risk adverse and guard your profits and account.
I see risk seeking as the sword that will slay my dinner and risk adverse as the shield that will protect it and me on the way home.
Per this definition, then I would change to risk averse. However, my perception of risk averse people are people that don't like to take risks or are avoid taking risks, like not trading at all, ever, like most of the people I know, This also applies to people that would never be an entrepreneur because it's too risky to deliver your own company/business/value proposition without paid vacations/sick days, subsidized health insurance and be subjected to a salary, camping out in a cubicle farm for 40 years taking no risks in the economic value marketplace. To me these are risk averse people.
I think all traders have to be risk seeking, but take quality risks. To me, seeking risk is seeking profitable opportunities, not gambling action, but maybe not to others. This morning I made 10 trades. I had 20 I could have taken and wanted to take more but my position sizing rules and inability to get a borrow for shorting some markets, as well as other filters, prevented me from doing so. Tomorrow, I look forward to taking more risks because they are based on a statistical edge with positive expectancy. Each oppty is like a new hand at a black jack table, and I'm the house. The more trades I can get into the better (opportunity factor).
