tactical trader

Catching up on my reading over the weekend I came across a fascinating piece from The New Scientist about our willingness to take risks. We read time and again about the effect of risk taking on our trading and investing but it is rare to come a cross a specific study of the problem.

Apparently, researchers from Queen's university in Belfast have conducted a detailed study of risk aversion by modelling the behaviour of 515 contestants in the first eleven series of the popular millionaire game show.

They have proven conclusively that roughly two thirds will have quit while they were ahead even though they would have won more (proven by a mathematical model). There was no logical reason for doing so, they were simply taking a risk averse stance.

So what does this prove to us? Not a lot I suppose as we all know the damage that can be caused by too little or too much risk taking but I wonder how many really analyse it for themselves.

Do you know your precise loss threshold for every trade you take? I doubt it. It is even more unlikely that you have specific profit targets to work toward that in turn relate to a clearly defined trading plan. If you do then well done, if not then you really do run the risk of doing exactly the same as the Millionaire contestants and quitting while you are ahead.