Financial Risk Taking : an Introduction to the Psychology of Trading and Behavioural Finance by Mike Elvin

“This book is written for people of moderate income engaged in risking their personal finances on a speculative venture. It is for the brave new world of stock and futures day trading, spread betting, options hedging, or any activity requiring courage owing to financial and personal risk.

For the purposes of this book, “risk” is defined as the coexistence of danger and opportunity; where there is uncertainty in relation to future outcome. The seductive blend of danger and opportunity has a powerful allure and the challenge of day trading is fraught with dangers, not normally associated with traditional employment.

If you have one, two or three degrees, diplomas, MBAs, whatever, you have no advantage over an astute comer shop newspaper vendor or a street flower salesman. In fact, a hypothesis has been suggested to the contrary; that people with professional qualifications need to “unlearn” their cognitive schema to engage the venture unencumbered by predispositions.

The substance of the book has been drawn from two sources: first, from my personal experience of changing professions in my late thirties from a relatively safe career of managing mental health services in London, England, to that of a stock index futures trader; second, from the large volumes of academic research papers and related literature in the fields of experimental psychology, occupational and performance psychology, economics, day trading, and business administration.

I hold formal qualifications and training in these fields and have confidence to make valid inferences from training, research and personal experience.

The purpose of this book is to present a synthesis of contributions to the psychology of financial risk taking (I will use the term “trading” as synonymous with “financial risk taking”) by numerous authors from the above fields. It will introduce the neophyte trader or speculator to a world of personal growth and learning which is as much of a requirement for competence as is a thorough understanding of market technical analysis.

When I embarked upon my training as a derivatives trader, I read many books by “experts” and I discovered that old concepts were being rebranded with ostentatious new names. Many authors led me to believe that they had “invented” new analytical systems or “discovered” scientific axioms, but I have now come to understand that many systems are combinations of moving averages of varying degrees of complexity. There will always be exceptions to this.

During my novice years of trading, I read Jack Schwagcr, Market Wizards and The New Market Wizards, which I highly recommend. I met numerous other “experts” and “wizards” in England who did not quite have the pedigree of Schwagcr’s “Wizards”, but nevertheless presented me with a model or paradigm for learning.

I did not understand the difference between going “long” or “short” in the market, which will give the reader an idea as to the amount and quality of training that I needed to achieve competence.”