The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success

3.3. CHAPTER IN REVIEW

1. Successful risk-taking behavior is the ability to take risk in a controlled way, follow the rules, manage drawdowns, cull losers, add to winners, express conviction in ideas in terms of sizing, and use capital appropriately.

2. The successful trader is a goal-oriented risk-taker with good abstract reasoning and not too much cautiousness or thoroughness that might interfere with his ability to trade stocks in his portfolio. He is able to run balanced books, get bigger when he has an edge, and take risks in calculated ways.

3. You can learn to assess risk-taking ability by considering a person's trading philosophy, how he handles drawdowns, and the certain mix of passion and dedication within himself.

4. In order to become a winning trader, a PM must be willing to review risk statistics with the risk manager so as to find ways of improving his overall performance, to examine personality factors that are likely to influence his risk management skills, and to explore various strategies that can upgrade his performance.

5. By looking at a trader's profitability or P&L, his percent of winning trades, his slugging ratio or W/L ratio, as well as his Sharpe ratio and other risk statistics from his previous job, it is possible to identify certain behavioral patterns that are reflective of his overall past performance. A lot of these factors are secondary to underlying psychological patterns, and from them you can make certain assumptions about future performance.

6. Personality can also ...