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August 31, 2002

The Psychology of Risk Mastering Market Uncertainty

By Editorial Staff

Also in this article

  • The Psychology of Risk Mastering Market Uncertainty

by Ari Kiev, MD

(Wiley, New York, 292 pages) $39.95

Reviewed by Gregory Bresiger

Traders must be true to themselves. But first, they must know themselves. The person who knows why he is good at something and bad at something else has a tremendous advantage, especially the person who is on the front lines of trading. These are some of the conclusions one draws from a new, useful book on risk and trading.

Author Ari Kiev, a psychiatrist who consults with traders, is a kind of modern day Polonius, dispensing advice to financial professionals, telling them that they must understand themselves. (Polonius, in the bard's play "Hamlet," advises his departing son that, "this above all: to thine ownself be true.")

"The Psychology of Risk" is an excellent read because it reminds a trader to understand his or her trading style as well as goals, according to Kiev. The author also asks the trader to examine his work and, in turn, his or her personality.

Trading Style

Kiev writes: "There are three critical issues to address when you start trading: 1) What are your goals? 2) How do you plan to achieve your goals (i.e. what is your strategy?) 3) What are the most likely obstacles to implementing your strategy? Specifically, what are you likely to do that may interfere with the trading process?" (page 260).

These are tough questions for almost any trading professional. How many professionals want to honestly pose these questions or want their bosses to ask them? How many professionals actually want to know themselves?

My guess, after reading this book, is that a mediocre trader, at a second-rate firm, is never going to engage in this kind of critical self-examination. This kind of trader, at some point, should conclude that a career change is in order.

Yet one of the charms of this book is that it is worthwhile for almost anyone in a competitive situation to ask these hard questions. That's because, although it mostly covers many of the pitfalls of trading as well as how one takes charge of a trading career, the lessons of the book can easily be applied to many other fields of endeavor. The book is thoughtful, interesting and well worth one's time.

More importantly, the book will likely teach a trader about himself. In the process, it will improve one as a trader. That's because almost any trader will probably find some part of himself or herself between the covers of this book if one looks hard enough. But that search can be an uncomfortable, yet ultimately a profitable, experience.

Kiev defines some well-known types of traders. Do you know any of these traders? Are you any one of these traders? First, there is his trading superstar.

Mentally Prepared