Can good risk management compensate for poor psychology?

[Exitoral]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

[Oshosondy]

Good risk management is one of the good trading qualities that professional traders have. If you want to be a trader and you do not have it, do not trade. It is the best quality that you can have in trading.

Trading psychology is also very important, but you can not have it without good risk management. Only a patient trader can make use of psychology in trading which can help again premature close of position and knowing the right time to enter the market.

If you have good risk management, it still means that if you lose in trading, you still have enough money that will make you go forward in life. Good risk management also makes trading asset liquidation to be hard to reach and it makes you also leave a position opened for a long period of time which makes it interconnected with trading psychology. Without good trading risk management, the trading psychology of such a person will be poor, full of emotions and costly miscalculations.

[Donk1]

Perhaps the simple logic here is that, as a trader you certainly need both. Best to say you need good psychology to hold your trades position and you need risk management and analysis to understand the market. So imagine understanding the market without having a good psychology definitely, you wouldn't be able to make good profits from your trades because you would be too scared to hold the position.....

​Overall I will certainly say psychology and risk management are both two sides of one coin. You certainly can't do without the other if you truly want to thrive as a trader that's all........

[EarnOnVictor]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

Do not be deceived, you need the both of them (management and psychology).

There are three important factors that will define your success in trading, which are: 1. Good trading strategy, 2. Balanced psychology, and 3. Proper management. Trying to undermine one for another is a quick letter to waterloo. Take all of them equally seriously.

[Ndabagi01]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

When you have a sound psychology towards the market, you’ll have a good risk management approach to the market. Psychology makes managing your risk better. If your psychology is infiltrated and always influenced by external factors that could cause you to react to the market in another manner, then your risk management strategy will fail. Risk management necessitates that your psychology is based off your strategy, employ it to the fullest to your own advantage and see how the market works out in your favor. You can’t have one with out the other, they work side by side with each other.

[Abu-Naim]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

I think before you can apply risk management, you will have to be psychologically ready to trade and that your psychological mindset is why you decide to use risk management, it is not something we have to argue about, they work hand in hand to make sure you have a successful and profitable trade.
To be able to trade effectively, you need to be prepared mentally, and you also need to have extensive knowledge about what you are about to start, and you also need to study the market properly so as to know what you are doing as a trader.

[EL MOHA]

Do not be deceived, you need the both of them (management and psychology).

There are three important factors that will define your success in trading, which are: 1. Good trading strategy, 2. Balanced psychology, and 3. Proper management. Trying to undermine one for another is a quick letter to waterloo. Take all of them equally seriously.

1000% agree with this,  personally I think the two risk management and psychology are about entangled that to me they are one and you need both to be called better at any, yes you apply a very good risk management on a thread you still need to be at a good psychology to actually be able to apply that risk management or even allow the trade to run, same way it’s actually has to be good risk management that makes your psychology great because without good risk management you would be exposed to huge loss and that will definitely affect your psychology.

So form me I usually put them out in one category and then trading strategy on the other category with, risk management and psychology holding around 70% chance of a successful trader

[stadus]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

I would want to answer yes but I think its more appropriate to say that both risk management and psychology are expected to deeply intertwined. If you are good in human psychology, which talks about how we perceive threats and decisions under pressure, then its good to say that you can also manage risk properly through stop losses or position sizing.

Limiting yourself to only risk management alone will only beat the expected over all performance and outcome of your trades, these two are actually inseparable.

[Alphakilo]

Do not be deceived, you need the both of them (management and psychology).

There are three important factors that will define your success in trading, which are: 1. Good trading strategy, 2. Balanced psychology, and 3. Proper management. Trying to undermine one for another is a quick letter to waterloo. Take all of them equally seriously.

1000% agree with this,  personally I think the two risk management and psychology are about entangled that to me they are one and you need both to be called better at any, yes you apply a very good risk management on a thread you still need to be at a good psychology to actually be able to apply that risk management or even allow the trade to run, same way it’s actually has to be good risk management that makes your psychology great because without good risk management you would be exposed to huge loss and that will definitely affect your psychology.

So form me I usually put them out in one category and then trading strategy on the other category with, risk management and psychology holding around 70% chance of a successful trader

I would sure as hell go with risk management anytime and any day because the market comes down to mathematics at any point but psychology is just probably a mindset that has been disciplined and tailored in a particular way.

Also, psychology without risk management is absolute failure because you can never protect your investment in the market when you have the calculations wrong from the point of entry, whereas, when your risk management knowledge is secure and updated, be sure that your psychology is secure even when doubts want to creep in.

[freedomgo]

Having good risk management is a reflection of having good or rich psychology as well. Because in the first place, you won't be able to execute risk management properly if you are poor in managing your behavior and mental state. You need to acquire both in the best way possible, otherwise you will not achieve your target goal or your expected trading outcome.

Poor psychology isn't welcome in trading, fix it first before entering the risk of trading.

[Questat]

Obviously, it won't. These two should be working with close connection, simply put, one without the other results into a loss trade. So if you think focusing on risk management alone will build massive profits in trading, then you are wrong there. Risk management is just one factor, and you can't do it successfully if you fail on your behavioral pattern and decision-making.

However, its rare to see people having the presence of one without the other, good risk management and psychology are built to work hand on hand to come up with the highest advantage.

[mirakal]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

Do not be deceived, you need the both of them (management and psychology).

There are three important factors that will define your success in trading, which are: 1. Good trading strategy, 2. Balanced psychology, and 3. Proper management. Trying to undermine one for another is a quick letter to waterloo. Take all of them equally seriously.

Well said. Success in trading does not only focused to risk management alone, although its the most crucial factor I think. We need to acquire balanced psychology too because it will determine what to do in every gambling situation that comes with stress, or when to take that action in the best manner.
Lastly, we need to internalize both of them, that is if we goal to completely profit in trading.

[Franctoshi]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

Both psychology and risk management work in tandem, so you can't choose one over the other, as mastering psychology or trading based on psychology alone can't bring you the desired profit without risk management over time because, when you place a trade without a protected loss, you will blow your trading account when the trade goes against you, and that can take you back to zero. So where am I driving to?
Psychology without risk management is just like driving a car without a brake, or take psychology as the car and risk management as the fuel that runs the car, then you would understand how both are important.

[Bitcoin_people]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

In every case, human psychology is the most effective, so if you can manage risk, then you definitely need a good psychology. Although risk management and psychology are important in trading, if one of the two is implemented, then I would give more priority to risk management. But you have to keep your psychology right first, if you are not healthy, then you will not be able to manage risk by trading. If you can manage risk well, then the pressure will reduce, as a result, the psychology will also remain stable. In trading, both are effective, so if you have to choose between psychology and risk management, then I think risk management will provide more protection in the long run.

[Hatchy]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

You need both but good risk management is like a branch under the school of psychology. Risk management simply means you are Abel to define how much you are willing to risk or lose in the market and you stick to it regardless of how favourable the trade is or how much probability you thought the trade was going to be. All these kinds of views are not possible if your psychology is not strong enough. A trader with poor psychological measures his risk from every trade. He tells himself that if the setup looks good he risk big and if it's not good he risk small. Yea it might work for anyone, but on the long run, you find out that your risk to reward will not be consistent enough. That's because you will often lose more than you win. When you have a good psychology in trading, you are about to analyse your risk management properly...

[Royal Cap]

Everybody says psychology is the key to better manage your trades. Because your mind has to be intact for you to place trades better. Others might argue that risk management helps you manage risk better than psychology can. So, if you were to choose which one to actually do to dish the other. Which will it be?

I would say that the decision to choose one over the other is actually quite difficult, because I think good risk management can never make up for a trader's weak psychology. You may have created a great risk management plan by setting a very nice stop loss and take profit in the paper, but when the price fluctuates in the live market, the patience and emotion control needed to maintain that plan will come from your psychology. A trader with a weak mentality removes the stop loss a little early for fear of loss or closes the trade before the take profit in the hope of profit , which ruins his entire risk management plan.

So it can be said that if risk management is your trading car, then psychology is its driver. If the driver cannot keep his cool properly , then no matter how good the car's brakes are, an accident will happen.

[Gozie51]

Others might argue that risk management helps you manage risk better than psychology can.

And I'm wondering what is psychology in trading and what is risk management. Is it not market psychology that will make a trader become aware that high leverage will wipe out his account because of the volatility? Risk taking is psychological because you crave for bigger gains but if you understand the market, you will compare how much balance you have in your account and the risk that you are about to take. So if I'm to choose then I will choose psychology first above risk taking but they are both part of the bigger picture in having a successful trading.

[Stepstowealth]

So, if you were to choose which one to actually do to dish the other. Which will it be?

From my understanding of trading I think if I'm to choose one over the other I would go for a better psychology than risk management because better psychology prepares you for making profits and with a very good psychology you may have a very good success rate when it comes to trading, but with risk management you are practicing how to manage your trade in times in case you are wrong in your analysis, which means that you are preparing to manage your account to ensure that you do not lose a lot of money if you have good risk management and poor psychology you will spend more of your trading time ensuring not to loose more money as you will be losing. Someone can correct me if they think I am wrong.

[Mpamaegbu]

Which will it be?

Both are extremely important in trading profitability but Risk Management trumps Psychology in a way. A trader with good grasp of their psychology may not panic even when their trades are going the wrong way until they pack up or get their accounts burnt. All what a trader with good Risk Management in place has to do is just calculate their PnL (Profit and Loss) ahead before getting into trades is set their parameters and leave if they know their psychology isn't intact. They don't have to sit and watch their trades because that can trigger premature exit from winning trades or cause them to expand and adjust their SL.

[Awaklara]

I think both are related and necessary for a trader to have. Trading allows you to manage the risk of every trade. But that should also be supported by good psychology from the trader. Because if you don't have both, your trading plan might not go very smoothly. If you can manage trading risk, your trading psychology should also be good.