In the world of trading, cutting loss is a very important thing. In order to avoid we not losing, we come out with many ways to avoid the feeling of losing. For example holding on to losing stocks. We deceive ourselves by saying that as long as we did not sell that particular losing counter, we have not lost yet. In actual fact, it is this kind of mindset that pull people deeper into the abyss
Theoretically, equities have 50% chance of going up and 50% chance of going down. And for example a person has an amount of money and segregate them into 4 stocks. Assuming 50% chance of going down, 2 stocks goes down and 2 went up. So that person holds to 2 losing stocks. People with such mindset will usually take profit quickly for fear that it will turn down. So after a while, that person will cash in his profit on the 2 winning stock while still holding to the losing ones. After that , with the cash after selling his winning stock, he buys 2 more. 50% up, and 50% down, 1 stock will go down and he holds it. The winning one, he sells as soon as there is profit. Now, he is holding on to 3 losing stock instead of the previous 2. As this goes on, eventually, he'll be holding on to 4 losing stocks.
posted by Whiteaura II @ 6:56 PM
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