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Gerald Ashley: How to beat the emotional trading traps
A key component of your success as a trader is your temperament and your personality. In the first of three reports, renowned behavioural and risk expert, Gerald Ashley, says there’s a real danger of getting wrapped up in the markets. He highlights three risk biases that you need to be aware of and gives advice as to how you can trade smarter.
Gerald says it’s crucial that you’re not seduced by what appears to be a dominant factor or a particular trend which could be masking what’s really going on. “Don’t be susceptible”, he says, and be aware that your personality could be getting in the way of making the right trading decisions.
Gerald, who’s written a number of books on emotions and trading, says although we all have aversion to losses, we need to get real. There’s a tendency to hang on and hope things will get better. This, he says, is a slippery slope and you could be suffering from the illusion of control which is “incredibly dangerous”, he says.
Gerald also points to the “sunk cost bias”, which he describes as the “real wealth destroyer”. This is where we put so much money into something, we feel we can’t afford to give up. Awareness of these biases is the key to more successful trading, according to Gerald, and he gives examples as to how we can change our behavior to minimize losses and maximize profits.
03:18 minutes
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