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"Fear your losses and let your profits run" – Jesse Livermore (Part I)
(This Part I article is on “Fear your Losses”)
No body want losses, for sure.
Do you deliberately want losses when you invest with your hard earned money? Even for learning experience, if we could avoid it, why don’t we?
However, the matter of fact is most people lose money in stock market! And they continue to lose more money over time. They feel the pain of losses, they regret, they curse and blame on whatever or whoever. If they still survive (i.e. if they do not commit suicide due to losses), they live with the losses and “forget” about it, leave the paper losses in the drawers which are never opened.
They are money losers, but they are NOT fearful of their losses. (Strange human behavior!).
They do not fear their losses. They only regret and curse, blame and try to forget the losses..
If you are fearful of a tiger, would you go into the jungle at night alone without protection? If you are fearful of something, you move away from it. If you are in fear, you will do something so that you are not in the state of fear by cutting off the link between the thing that causes the fear from yourself. That is a sane human behavior,
But in stock market, there are many insane people.
Insane people do not face reality. Drug addicts and drunken behave the same. They keep telling themselves that they are ok, it is the world that is Not OK!
Market players who lose money do not face reality. They keep telling themselves that they are not the problem, what they suffer is only paper loss, it is the market that is the problem.
Addicted gambler “embrace” losses (not necessary with love, but no choice), they believe that it is only temporary. Good luck will come later. Keep gambling, hope for the best. So are the investors whose investments are in the red.
Many casual investors rationalize their losses as minor, after all they only invested $ 10,000. It is not a big amount. But they do not know that a small dark cloud like a cancer is eating into their brain and mind. They gradually loose the ability to recognize what is good investment and what is not, when they do not have the courage to admit poor investment knowledge and skills, take the loss, cut the link, start all over again to take own responsibility to study deeper. They may try another round of investment or different kinds, again small amount, diversify here and there, hope for the best even there are new losses.
"Fear your losses …”
If only we develop the ability to fear losses.
Because we fear losses, we can develop skills to cut of the link of potential loss or small loss before it becomes bigger loss that can paralyze us to become insane.
Even when we suffer big losses, as long as we are sane, we cut the losses to protect whatever left of our capital and start to relearn again.
When we were young and first touched a hot kettle, we suffered pain and we become fearful of hot kettle and developed strategy to handle hot kettle when we were old enough to boil hot water using kettle.
How do we Operationalize this Learning Principle : “Fear your losses”?
“Fear your losses” start in a concrete way before one starts investing with plan and strategies. With good homework that next market movement may bring us handsome profit, what if it does not happen that way, where is our escape route to minimize loss? The plan and strategize to manage loss are well put in place before trading and have the discipline to execute the plan and strategies.
“Fear your losses” attitude and action continue until loss is cut, as per plan, or profit is really made when exit from the market.
What happen if it was an unfound fear of loss? After cutting the initial loss, the market moves into profit zone?
Don’t curse and blame the market, or the rule about “fear your losses”. Go back to the homework and figure out in what way the application of Technical Analysis tools could be better improved.
“Fear your losses” is still a profound investment principle that will help to protect your capital and ensure you make investment profit in the long run when you master the disciplines and skills in Technical Analysis.
End.
"Fear your losses and let your profits run" – Jesse Livermore (Part
II)
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