Thoughts On Risk & A Personal Interview

Non-Market Weekend Stuff

I don't do trader psychology, but here is some anyway.

And I don't do personal interviews, but I did one anyway.

Hope something resonates.

Risk can be defined.

Don’t ever forget that.

In options, we calculate the risk and use tactics to trade within the risk parameters - arbitrary parameters we define without certainty, but we try hard.

Sidebar: Uncertainty is unknown risk, which is why some use hedges. These are trades based on parameters that are very difficult to anticipate let alone measure, but they make logical sense to limit the risk we are taking big picture.

Some live in the mental torture of perpetual hedges. Don't do that, please.

:face_holding_back_tears:

Moving on…

One thing defined and undefined risk trades have in common is this:

Risk Perception - that is the subjective assessment of those objective risk parameters. :face_with_spiral_eyes:

So when even the smuggest traders say they only play the probabilities, unless they are math-only quants, they use a system of perception - based on present and future estimates of risk/reward!

And they do estimation by weighing potential loss against potential reward based on risk tolerance that comes from … (get ready for it) risk management experience! :stuck_out_tongue_closed_eyes:

And that my friend is based on personal psychology (especially ones personal biases), and a personal relationship to money!

So don't beat yourself up: Trading IS Personal and often reflects our perception of ourselves. :wink:

With that…

Gambling for the mass majority of traders is summed up perfectly by Buffett:

“Risk comes from not knowing what you're doing”

Gamblers rather be lucky than good. And much to my chagrin: They really just want the trade. They don’t care about why. :unamused:

Probability trading is primarily relegated to quant, algo, automated trading systems. [We have some of those coming next year, btw. Algos that are used as indicators to make trading decisions!] But few trust “the machine” to manage our money, or even want to do this because it removes the emotion from decision making. Where’s the fun in that!? :grimacing:

We also have Hans - #options-mentor-hans - who teaches clients how to use probabilities in placing option trades! :thumbsup:

The rest of the investment world is just plain lazy as passive investors. Letting others charge us for the servicing of our laziness has become the most profitable strategy of all time!

But WE, dear clients...we are self-directed discretionary traders, and that is why I am thinking out loud here about risk. :star2:

I love that word, “ discretionary", because if truth be told, we are at the discretion of our risk perceptions! :warning:

Literally, we are all on a quest of learning to trust our gut AND figuring out how to make it one more time around this board game called “RISK” :vertical_traffic_light:

And it really doesn’t matter how stupid or sophisticated, rich or poor, connected or isolated… we all have one lesson underneath all the lessons that we learn while playing this exhilarating, terrifying, never-ending game:

“Don’t risk more than you’re willing to lose. “ :100:

And with that, I wish I had learned that much, much earlier.

A Personal Interview With Samantha LaDuc