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"Fear your losses and let your profits run" – Jesse Livermore (Part
II)
(This Part II article is a continuation from Part
I)
"Let Your Profit Run"
- Everyone likes that idea. No doubt about that!
But many just cannot do that. They regret, they curse, ... because they
sold too earlier, making only a small money, Not big money!
In the earlier article, "Fear
Your Losses", we observe that many do not face reality. They do not
take courage to fear losses to cut off or minimize their losses. They hang
on the losses like their security blanket (not feeling fearful of it to
let go) and wait and hope for the good time.
When the market recovers, their
losses reduces to zero and losses turn to a little profit. The earlier
psychological wound of the losses was so deep that they are scared to experience
the pain and regret and they quickly take the little profit, sell and run.
Then they regret again, because the
market goes up and up. They see the extra profit or money vaporizes into
thin air,
They are others, who may not be
losers before. but when they see profit in their investment. they simply
get too excited. Sell the take the little profit.
Some like to stick to the
investment principle - "Let
your profit run" but they
have no clue about what signals to watch that give better assurance that
the market is still having bullish strength to charge up some more. Many
use logical thinking - say looking at economic indicators, business
performance, social events, political factors etc. to guide their
investment decision. Some realize that many of these obvious indicators or
reasoning do not necessarily support the market sentiment.
Hence investors either sell too earlier and miss the larger gain or
profit, or they exceed the so called bull run and profit turns to losses
quickly.
When bombarded with such unpleasant and frustrating experiences, most
investors take small profit and CANNOT "Let
your profit run" .
Behavioral Analogy
Parents take tender care of baby. With good observation and getting to
know the baby so intimately, they know at what time to let the child
stand, walk and run. Let your child run, so that he or she can enjoy and
grow faster. Parents can let the child run because they study and care for
the child.
How do we Operationalize this Learning Principle : “Let
your profit run”?
Use the same learning principle
like parents letting their child run.
Learn to know the behavior of
the market by studying its pattern and trend like what we do in our
QuaSyLaTic Investment System training.
We use technical tools,
(mathematical models) to study carefully the past behavioral pattern of
the market, like parents studying the developmental growth of the baby,
and we use the same tools to guide us on next possible moves of the
market.
"Let your profit run” when
the learned rules are still intact, and our assumptions validated by the
evolving and emerging new signals. We also apply "Fear
Your Losses" principle
to protect our capital and profit so far, by establishing certain criteria
that we must let go to avoid losses.
What happen if it was a too earlier exist, or market drops very
fast?
Don’t curse and blame the market, or the rule about “let your profit
run”. Go back to the homework and figure out in what way the application of Technical Analysis tools could be better improved.
“Let Your Profit Run” 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.
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