Risk Management vs. Time Management

2020年10月1日

Hey! Have you been spending day thinking about mistakes you made and things you didn't do?

Investors are knowingly comparing an exchanges to a casino. A gambler, losing, does not get up from the gambling table in the hope of winning back. He believes that the likelihood of winning increases with every lost bet. This phenomenon, called player mistake, is common among investors.

The pioneers of the theory of behaviour finance Hersh Shifrin and Meyer Statman showed in 1985 that investors intuitively misjudge the likelihood of repeating random results - they hold unprofitable positions too long, hoping for a return in prices, and close profitable positions too quickly, fearing that the movement will end.

The assertion that the market cannot fall for many sessions in a row is untenable. Short-term changes in asset prices are mostly random, notes analyst and author of several books on behaviour finance, James Montier, in his article Global equity strategy, gamblers fallacy. Tails does not become more probable after a series of heads, the coin has no memory - in the same way, the chances of success do not increase after a series of failures.

The major problem in the trading when we trying to recoup from losses. Many people make this mistake over and over again.
The reason of this mistake is the unwillingness to accept and calculate affordable losses and come to terms with the result, the wrong internal setting that you must end every trade and every trading session with a profit. But not every trade will be profitable.

How can I avoid this mistake?

1. After loss trade, tell yourself: "Stop, I won't trade now, I will pause."

2. Analyze the failed trade and write it down. Thus, you will allow yourself to "cool down" and more intelligently approach the situation on the market. There will always be opportunities, don't be afraid to miss out on any movement and profits.

3. Calmly develop a new trading plan based on market changes. If according to the trading plan you need to enter, then enter and earn. Do not rush to enter the market immediately, because it is easy to enter, but it is difficult to exit, since it is no longer possible to change the initial price at which you entered.

4. Make sure you following your risk management and always trade with possibility to lose.

Stay safe and good luck!

2020年10月2日

ノート

How to balance your life and trading article:

2020年10月2日

ノート

Here is the advice for new traders and ones with relatively small accounts

2023年10月7日

ノート

Are you stuck replaying past trading mistakes?


Here's how to break the cycle:
1️⃣ Pause after a loss.
2️⃣ Analyze and learn.
3️⃣ Develop a new plan.
4️⃣ Stick to risk management.

I hope you find this article useful!