Learned this one the hard way

swingtrading

#1

Every once in a while, I read something that is absolute truth and makes an indelible mark on the brain:

“There is one unmistakable psychological signal to exit a trade. That is, if you even think about hoping a trade will turn around and move in your favor, then exit the trade immediately. Hope has a negative value in trading.” – John Ehlers, Cycle Analytics for Traders


#2

want to share more details…?


#3

Its the sin, I think every budding investor/trader makes:

They buy into an investment, whether attempting to buy the bottom, FOMO’ing, or whatnot. But the price fall doesn’t reverse to the upside or it reverses to the downside right after you buy.

Then, you hold and watch it fall. When it stops, you breathe a sigh of relief and say, “ok, now it’s gonna climb back and I’ll be in the green.” It doesn’t, but you keep holding it. It goes down even more and you start telling yourself, “but I believe in the company/tech/product, it’ll bounce back strong.” It keeps going down. Then you’re so far down, if you sell, you lose substantially, so now hoping for the big one to pull you out of a bad decision – a decision you’re in denial of even being bad in the first place. Yet, your investment keeps on going down.

So, yes, hope erodes your portfolio faster than anything else, especially in the game of actively trading. As a trader, one absolutely must learn to detach emotionally from the trading decisions. To trade successfully, you have to not only be rational, you have to take a purely systematic approach to the whole endeavor. Otherwise, hundreds of small profits can be wiped out by one single massive loss where you think you’re buying the bottom and then pinning all your hopes on the outcome.