Logic takes a back seat in share trading

Monday 29 March 2004

Everyone knows the old rule about dumping your losers and letting your winners run. But many active share traders lose their bank within a year. Why is it so hard to be logical?

By The Landlord

It's because logic is only part of the process.

Brokers say that not having a plan - or having a plan but not sticking to it - are the biggest problems. In techno-speak that is inadequate or biased perception, often followed by inadequate or biased analysis, followed by inadequate execution. In other words, often we can't see, can't think or can't do.

Can't see

It's about looking at the wrong information, seeing things that aren't there, because you really want to see them, or being blind to things you don't want to know about.

Many traders are fixated on seeing things that predict price changes. Even if this is possible, it might not be as important as doing the right thing when the price does change.

Can't think

Analysis problems include inadequate or incomplete data processing, not doing enough homework, or using biased data.

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