Risk Management Trading Strategy with Robb Reinhold
Replace Your Income with Options
The Psychological Challenges of Risk Management in Trading
Traders often struggle with risk management despite its seemingly simple concepts due to the cognitive processes involved in decision-making under pressure. Studies reveal that when money is at stake, individuals shift from using the logic-driven prefrontal cortex to the insula, which governs fight or flight responses. This neurological change leads to irrational decision-making as the brain relies on instinct rather than reason. It highlights that the emotional, survival-oriented reactions can override logical thinking, making it challenging for traders to execute effective risk management strategies.
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