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• Archive: Investors spend countless hours prying into the inner workings of companies but conveniently forget to pry into something even more important in making successful trades: their own psychologies.
• The goal of behavioral risk management and trading psychology is to override the emotional and cognitive biases that effect poor trading decisions.
• By knowing your own blind spots (all humans have the same blind spots), you can avoid common losses due to innate human biases.Most trading teachers simply pooh-pooh away trading psychology, saying, “Just don’t give into fear/emotions/whatever.” Some teachers take it a step further, preaching about aspects such as greed – but none of this is advice that can actually help you become a better investor.
• The truth is behavioral risk management is more than just avoiding fear and greed – it’s about developing a trading strategy that’s purely logical and optimized for gains.Yes, you might already have trading rules that include stop losses and take profits to prevent against fear and greed.
• But risk management isn’t about these technical tactics; it’s about gaining control over your own mind.