There are many ways to trade, and traders can have as many different kinds of personality traits as there are ways to trade profitably. But if you want to trade chaotic, fast-paced markets in the short term, some personality traits are more ideal than others. For example, it is not ideal to be fearful and easily knocked off balance by even the slightest ripple in market conditions. It is useful to be thick-skinned, and not easily distressed by even the most unexpected or dramatic trading losses. You can’t be afraid to take a risk. That said, a person who is willing to take risks may also be at a disadvantage. The person who enjoys risk can take too many chances that can lead to significant setbacks or even a major disaster.
Consider what happened to Pittsburg Steelers quarterback Ben Roethlisberger recently. He ended up in the hospital after a horrible motorcycle accident in which his unprotected head shattered a car windshield. Many sports commentators criticized Mr Roethlisberger for not wearing a helmet. Others wondered why he would risk riding a motorcycle in the first place. In his daily commentary on KCBS radio in San Francisco, John Madden suggests that unnecessary risk-taking should be expected among young athletes.
He observes that football players routinely take risks every time they walk onto the playing field. It is necessary to have a little bit of psychological denial to take such risks nonchalantly. They must believe that even though they put themselves in harm’s way, no harm will come to them. If they weren’t willing to take such risks, they would not be able to perform at their peak.
It’s the same situation with most traders. A trader who is afraid to take risks is a trader who will miss market moves or make trading mistakes. The trader who is willing to take risks, in contrast, may have nerves of steel, but such feelings of omnipotence can be their downfall at other times. There are times when fear can be adaptive. Fear can protect us from harm.
It’s necessary to not feel so invincible that you feel you can do anything. You can’t. It’s vital to control risk. It is necessary to risk a small percentage of capital on a single trade. It’s useful to stand aside until a high probability setup is identified. It’s essential to trade with a well-developed trading plan and to stick with it. But traders who are fearless tend to have trouble in these areas.
Traders who are comfortable with risk are prone to take unnecessary risks or may lack discipline at times. The trait that makes them potentially great traders can also be their downfall if they are not careful. Their demise is not assured, however.
All they have to do is be aware of their tendency to take unnecessary risks and make sure they are constantly trying to fight this tendency. If you are a risk-taker, limit your risk, and always consider the worst-case scenario and whether or not you can survive it. Taking risks is necessary to trade profitably, but at the same time, managing risk is the only way to survive and stay profitable.