The Most Underestimated Risk In Trading
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Most understimated? Counterparty risk i.e your broker goes under with your funds. SIPC stocks may de facto riskless although you may underestimate how long to get your funds back. CFTC coverage is PSEUDO coverage - it just looks like you are protected. I agree his applies more to institutions than small traders but it is still and underestimated risk imo
Don't think it applies - I had money with Refco (CFTC covered side) On this occasion no problem funds transferred to MAN but I did get to understand that it is just meant to look like you are protected (have explained elsewhere on ET)
I saw friends in difficulties after Thai Govt took over failed finace companies. 5 years to get your money back and iterest component was at Govt bond interest rates (rate fair under the circumstances IMO).
The other underestimeted risk always was being in the market leveraged when something hits. After GFC and Flash crash people are wiser now, but histrorically it was always underestimated. Forget stops, there are none under those circumstances. As it was explained to me "it may happen 20 seconds or 20 years after you put on your first trade but it will happen" When thinking about strategy and its returns you have to ask Is it shockproof? Ben Graham lost a lot % wise in 29-> but then again much of it was what Buffet calss quotational risk. Presumably he was able to come back from this because he was in fundamentally OK stocks anddiversified enough to cover some bankruptcies and presumably was unleveraged. Many pit traders were wiped out in '87 after "20 years" in the markets
The fact bthat markets are at their most alluring when they are at their most dangerous i.e that stage where you are supremely confidnt because everything you touch turns to gold and which is usually the stage just before a reversal
Next most underestimated risk? Human capability for Denial
Don't think it applies - I had money with Refco (CFTC covered side) On this occasion no problem funds transferred to MAN but I did get to understand that it is just meant to look like you are protected (have explained elsewhere on ET)
I saw friends in difficulties after Thai Govt took over failed finace companies. 5 years to get your money back and iterest component was at Govt bond interest rates (rate fair under the circumstances IMO).
The other underestimeted risk always was being in the market leveraged when something hits. After GFC and Flash crash people are wiser now, but histrorically it was always underestimated. Forget stops, there are none under those circumstances. As it was explained to me "it may happen 20 seconds or 20 years after you put on your first trade but it will happen" When thinking about strategy and its returns you have to ask Is it shockproof? Ben Graham lost a lot % wise in 29-> but then again much of it was what Buffet calss quotational risk. Presumably he was able to come back from this because he was in fundamentally OK stocks anddiversified enough to cover some bankruptcies and presumably was unleveraged. Many pit traders were wiped out in '87 after "20 years" in the markets
The fact bthat markets are at their most alluring when they are at their most dangerous i.e that stage where you are supremely confidnt because everything you touch turns to gold and which is usually the stage just before a reversal
Next most underestimated risk? Human capability for Denial
Quote from JoePaterno:
This ranks as one of the most naive posts ever on ET. You don't try to predict it (which is what "timing the market or picking turns" is), you are unwilling to monitor it, but you are willing to make trades in the market and walk away while your "stop loss" may or may not get you out in a fast or chaotic market
Well thats exactly how I trade. The only thing is adjusting my positions to stocks that may be affected by news. You can't predict where the market will go, so you hedge against it. All that matters is the long run, i don't care if my stops get hit or not I only care that I'm profitable at the end.
This, definitely...
I have a feeling all in life is based on luck and choices are just illusion. basically being rich or having a greta women was not your own choosing, you just were lucky. A poor sob without money or women or disability was just unlucky. Nothing you can do about it.
"There are known knowns; there are things we know that we know. There are known unknowns; that is to say, there are things that we now know we donât know. But there are also unknown unknowns; there are things we do not know we donât know. --- Rumsfeld"
The most underestimated risk in trading imo could be some "Unknown Knowns"; there are things that I don't even know, but other players know them quite well.
The most underestimated risk in trading imo could be some "Unknown Knowns"; there are things that I don't even know, but other players know them quite well.
Good answer.
Expanding on your thoughts, the following so inspired me that I keep it in front of me in my office.
Quote from Marlys Witte, MD
University of Arizona
Professor of Surgery:
Ignorance represents all that we have yet to learn and discover - from an individual or collective viewpoint and shifting over time. You cannot learn what you already 'know' - although you may have to unlearn some things, and you cannot discover something you've already found - although you may occasionally rediscover something you've misplaced or forgotten. Also, ignorance - i.e., unanswered questions - is the raw material of knowledge, and (current) knowledge is the raw material of (future) ignorance, i.e., answers and questions shift with time and the accumulation of answers. That is why, some years ago, philosopher-in-residence Ann Kerwin, PhD, and I developed the Ignorance Map (below) to define these shifting domains of ignorance.
What is Ignorance?
I think the MOST underestimated risk is the addiction to trading.
its like crack
its like crack
The missed opportunity risk:
you "see" a good setup, but you don't take the trade because you lack confidence and/or you screwed the last trade and/or you're trying too hard to perceive the future but realize you just can't.
Very often the net result is effectively an excellent opportunity which you reluctantly passed on. Frustration at a climax. ^^
you "see" a good setup, but you don't take the trade because you lack confidence and/or you screwed the last trade and/or you're trying too hard to perceive the future but realize you just can't.
Very often the net result is effectively an excellent opportunity which you reluctantly passed on. Frustration at a climax. ^^
I recommend caution here. Dwelling on a missed opportunity is an emotional problem. In the universe of opportunities that meet your criteria, there will always be some you missed. There will also be more coming down the pike.
I prefer the following to inform my view of missed opportunities.