{"id":3174,"date":"2016-04-01T16:19:04","date_gmt":"2016-04-01T21:19:04","guid":{"rendered":"https:\/\/www.optimusfutures.com\/tradeblog\/?p=3174"},"modified":"2016-04-01T16:19:04","modified_gmt":"2016-04-01T21:19:04","slug":"makes-traders-take-higher-unnecessary-levels-risk","status":"publish","type":"post","link":"https:\/\/optimusfutures.com\/blog\/makes-traders-take-higher-unnecessary-levels-risk\/","title":{"rendered":"What Makes Traders Take Higher and Unnecessary Levels of Risk?"},"content":{"rendered":"

Almost every Forex and Futures trader that we have spoken to has admitted to, at some point, taking a trade outside their method and\/or outside their risk tolerance.\u00a0 We were curious to see what makes people take those types of trades and whether we can find ways to eliminate this negative behavior.<\/p>\n

We engage in situations where we have to deal and assess the level of risk on a daily basis. Whether it\u2019s crossing the street, getting in your car or making investment decisions and placing trades, your brain always analyzes the potential risk and reward tradeoff – but not always in the most rational ways. There are instances where you will be prone to taking higher risks than necessary.\u00a0 In trading, this rarely ends well. In fact, the professionals want you to take these unnecessary risks.<\/p>\n

You must also keep in mind that risk\/reward evaluations also take place on a psychological level and include a \u201ccombat\u201d of the Amygdala (processing of memory, decision-making and emotional reactions) and the Neocortex (sensory perception, conscious thought, etc.)\u00a0\u00a0 Essentially, your brain is always battling between what is an acceptable amount of risk and what is not.<\/p>\n

We believe that a major factor in successful traders is their emotional intelligence.\u00a0 Simply put, when they experience a set of emotions, they understand the source and relevance of their feeling.\u00a0 This higher level of emotional knowledge and analysis is where you need to strive and get to. This may prevent from you taking unnecessary trades and possibly making better decisions. This is where you understand how your emotions affect your thoughts.<\/p>\n

Let\u2019s jump into the variables that cause futures and forex traders to take unnecessary risks:<\/p>\n

Boredom <\/u><\/strong><\/p>\n

Being bored has a \u201cdark side\u201d which often leads to compulsive over trading and rarely leads to good results. The fast pace of the markets and the sudden volatilities while sitting on our hands waiting for the right opportunity is not an easy task. As a consequence, this leads most traders to take decisions which inevitably end up being wrong under most circumstances.<\/p>\n

FOMO<\/u><\/strong><\/p>\n

The Fear of Missing Out<\/a> is sparked by ongoing breakouts in the day-trading<\/a> charts. This causes impulsive behavior which leads to increased risk and taking trades which may lead you to believe will be “the one”.<\/p>\n

Stress<\/u><\/strong><\/p>\n

There is healthy market volatility that presents traders with good risk and reward opportunities, and then there are times when the market is highly volatile with extreme swings, both up and down. This causes high stress, but oddly enough, traders take more risk than they should when under stress. This may be reflected in trying to catch tops, and bottoms, over leveraging contracts or number of pairs, etc.<\/p>\n

Social Peer Pressure<\/u><\/strong><\/p>\n

Trading today is very different than it was only 5 or 10 years ago. We are exposed to trading news outlets, forums, Twitter, Facebook, etc. Traders always have an opinion and listening to the wrong people can be costly. However, traders rarely do a thorough background check and often just hope that someone knows more than they do about a potential trade. Acting on someone else\u2019s opinion has to be avoided in trading because it increases your risk significantly.<\/p>\n

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How to overcome unnecessary risk taking? <\/strong><\/p>\n

There are a number of things that you can do in order to reduce your level of unnecessary risk taking:<\/p>\n