Tag Archives: #Loss

An Anatomy of Loss Aversion

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Just ask…

…a doctor…

…about the toughest course at medical school.

He or she will probably say…

…anatomy.

Well, cut to the stickiest field in market play.

You got it.

Loss aversion.

Is a thing, and is…

…not a thing.

Depending on the on-off switch.

Switch is off, and you don’t need to bother about how much your stock is down.

There is something in the story telling you that the broad market is wrong.

Gross discounting and mispricing.

So gross that you’ll buy more?

Maybe.

So gross that it scares you into capitulation?

Because you’ve lost faith?

Your story not sticking?

Welcome to a world where this particular switch has, for you, just turned…

…on.

And in this world, the Sun doesn’t shine so bright.

Your food doesn’t taste so good.

Your mood is below par at best.

Your ego just took a huge hit.

You were wrong.

Now you are either facing up to it, or…

…averting the gaze of your loss.

This is a common storyline. Happens all the time. To all of us. Please…

…don’t beat yourself up about it.

1). Since belief is gone, so must the stock … go.

2). From the remnants, buy into something where the story is rock solid, and where perhaps some margin of safety exists too. Basically buy where your maximum tick-marks hit.

3). Move on. There’s so much to do in life.

Once a switch goes on, please…

…keep the torture phase down to…

…zero.

By following steps 1). 2). and 3).

Till the time that a switch goes from off to on, till that time comes, please…

…enjoy your life in your world where the switch is off.

Please…

…don’t sacrifice off-time by behaving like it’s on-time.

Off-time means time and space to make some great calls elsewhere, those that come in handy, especially when a switch turns from off to on.

You know the next step.

Dealing with Demotivation

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Every now and then…

…we don’t feel like working. 

This…

…happens. 

Let’s not PhD over it. 

After accepting the onset of periodical demotivation, let’s focus on dealing with it. 

Nullify the cause. Let’s at least try.

Hungry? Eat.

Fight? Resolve.

Losing streak? Review, tweak, test, re-implement.

Unhappy? Chant. Then work. 

Let’s say one is not able to nullify the cause. 

Let’s take a stock. It’s down. You hold it. There’s nothing wrong with it. 

If you’re demotivated here, aha, please rewire your psychology. 

When something fundamentally and technically sound is down, we buy more of it. 

However, every bone in our body feels deflated upon an accrued notional loss. 

That’s how we humans are wired. We hate losing. We want to win all the time. The best time to buy good stocks is, though, when they’re losing. 

Therefore, …

… rewire,…

…if you want to survive in the markets. 

Once you’re done rewiring, get back to your desk, and buy more of that something fundamentally and technically sound offering margin of safety. 

Lazy?

Market will finish you. Cut it out. Back to your desk.

Wish to get away from your desk? Fine, take your laptop, ipad and smartphone to your easy-chair. Work.

Nothing’s working? Take a small break. Watch an episode of “Billions”, or of whatever gets you going. 

Done?

Let’s go.

We’ve got stamina.

Nath on Trading – IV – We’ve got Stamina

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61). We’re able to take many, many small losses, without flinching.

62). Only that sets us up for the big wins.

63). We don’t second guess our stops.

64). In fact, we want the stop to hit. As in, hit me, if you’ve got the *****.

65). When the trade moves in our direction, we let it. We’re doing other stuff.

66). When the trade moves against us, we let it. We’re doing other stuff.

67). That’s because we fully understand the function of our stop. It will take us out of the market, whether in loss or in profit. It’s dynamic, you see. It moves with the market as per the definition provided by us while punching in the trade.

68). We’re not afraid that our stop could be jumped. Can happen, in a panic. Hopefully, our technicals will have placed us in the right trade direction before huge and fast moves. It comes to mind that this kind of move occured at least twice in the last six years, once with the swiss franc, and once during Brexit. If we start worrying about such one-offs, we won’t trade at all. 

69). We look at the technicals, and we listen to what they’re saying. The trend is our friend. We trade with the trend, either on fresh highs (fresh lows) or on pullbacks, depending upon the conditions.

70). This is trading, so I personally don’t look at fundamentals. However, cook your curry the way you like it.

71). We might zero into tradable underlyings with screens or searches, but…

72). …we eyeball into final trade selection.

73). Yes, the chart needs to look and feel just right. All but the one tradable entity are rejected by the look and feel of the chart. The one remaining is the one we trade. If none remains, we don’t trade. 

74). Price is king. We’re into price action.

75). Indicators only indicate. Price does the talking.

76). What the price is saying will reflect in the indicator, but with a time-lag.

77). Do we want this time-lag? I don’t.

78). Thus, price action it is, for me. However, everyone is looking at the same price.

79). Therefore, we need to think slightly out of the box, to make money.

80). Edge + out of the box thinking + stamina nails it.