Humans are generally poor in perceiving actual risks — especially traders. So how important is it to assess risks correctly? Do you ever second-guess yourself?

In this episode of 2Traders Podcast, Darren and Walter clear away the fog on the topic of risk assessment, discounted information, cognitive bias and the problems that come along with it, position sizing, trading gaps, and the befuddling psychological phenomena called the “availability heuristic.”

You’ll also learn here how shark attacks can help you decide whether to join a trading bandwagon or not.

Download (Duration: 32:29 /37.1 MB)

In this episode:

01:01 – shark attack

03:19 – the bottom line

05:10 – ultimate line in the sand

06:12 – underestimating worst loss

08:20 – if I’m a new trader

09:43 – all about gaps

11:35 – why gaps are crazy

13:05 – a particularly unusual thing

14:15 – availability heuristics

17:43 -deciding based on risk

19:51 – disadvantage of risking the same

21:54 – a perfect storm

23:19 – probability theory

26:06 – overestimating the risk

28:02 – perceived risk versus actual risk

29:21 – flamethrowers

31:14 – distinct difference

32:07 – moving the pieces

Tweetables:

Decide what is the most you want to lose. [Click To Tweet].

You can paint anything with one brush. [Click To Tweet].

Do you eve second-guess yourself? [Click To Tweet].

Download The Full Episode 62 Transcript Here

Darren: Whenever you have perceived risk, you should then be able to compare that to the actual risk before you make your decisions because, generally, we are pretty poor in perceiving the actual risk…  

Announcer: Two Traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.

Walter: Welcome to the Two Traders Podcast. It’s Walter here. Hello, Darren. How are you?

Darren: I am very good, Walter. Just relaxing.

Walter: Yes, you are. I am jealous. It’s cold where I am at. I know it’s really nice and tropical where you are. So, let’s talk about this, Darren. We we’re thinking about risk just before we turn on the recording here and talking about risk can how sometimes, we don’t really rationally assess the situation.

I was talking about the idea that a lot of surfers, a lot of surfing friends I have, they’ll start talking about shark attacks particularly when there are a few sharks sighted or shark attacks in a certain area. They’ll say “Oh, that area is sharky. I don’t want to surf there.” Or, “It’s quite sharky right now. I don’t think I will.”

These thoughts pop into your head which is not really that rational because, looking at the true odds, if you’re waiting to cross the street and go to the beach and going to jump in the water,