Decoding Markets and Marwood Research
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101 Lessons For Aspiring Traders PDF
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06 07 08 09 10 When you are losing, don’t fight the market. Play defense and take some time off if you need to. Preserve your mental capital as well as your financial capital. Another bias humans have is known as the endowment effect. This is where we value things we own more than things we don’t. This causes investors to get tied to a stock because they own it and hold on to it for longer than they should. Try to stay objective and don’t fall in love with a stock. Confirmation bias occurs when we ignore information that doesn’t confirm our existing view. For example, when a bullish investor only listens to bullish opinions. This causes investors to be blinded to the risks of an investment. The obvious solution is to purposefully seek out information that contradicts your original thesis. Humans also suffer from a concept known as aversion to losses. This is an evolutionary trait where we hate losses more than we like gains. For example, in the stock market we remember our losses more painfully than we remember our wins. This causes problems for risk control and can cause us to go on tilt after a loss. Don’t hold on to a loser just hoping it goes to break even. And don’t be so hard on yourself after cutting a loser. Another human trait is overconfidence. We all think we are better than average but that fact is statistically impossible. It’s better then, to believe you are average, or below average, and that you must work harder to capture your edge in the market. Some times you must trade with the crowd and some time you must trade against it. There is no such thing as a better way, it all depends on the situation and the forces at work. 11 Paul Slovic found that horse racing handicappers did no better when presented with more information that should have helped them better calculate odds. The lesson here is more information is not always better. Concentrate on what’s important. Only use the information that is going to improve your odds and focus on your strengths. Download 1.87 Mb. Do'stlaringiz bilan baham: |
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