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than just earning a little profit. We can also begin to glimpse how all of these associations are online with us unconsciously when we are trading. |
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Since we are attaching personal meanings to money, it follows that when we lose money on a trade or longer-term investment, we are losing more than just our capital. We are also losing part of the meaning we associate to the money. Psychologically, we are losing a feeling of success, freedom, power, security, independence, or whatever other value we have equated to money. |
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When we see how losing money means losing the values we associate to it, we can more easily understand the common behavior of letting losses mount up. Logically, it doesn't make sense to hold a losing position until it buries us. But if we can preserve our sense of identity, freedom, security, power, independence, and hopes for the future, what's a monetary loss compared to these important values? As long as we don't sell, we have preserved the associated value. |
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The next time you find yourself stubbornly resisting selling a losing position, ask yourself what else is psychologically being lost if you sell. Sometimes, simply in bringing to awareness what we are really risking, we are freed to go ahead and take the necessary action. |
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Just because we don't consciously think about these meanings of money doesn't mean they aren't affecting us when we're trading. They are always lurking, even if unconsciously, in the background. To the degree we make them conscious, we may take them into consideration as part of our personality makeup when we formulate an approach and style of trading. |
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And we can free ourselves to execute trades more decisively. This is an element in helping us become more disciplined investors. |
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Obsession with Keeping Score |
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One of the common errors made by beginning day traders, position traders, and long-term investors alike is spending an inordinate amount of time thinking about and tracking gains and losses before, during, and after trades. Because money is on the line, our decision making is overly conditioned by the fear and greed that accompany this score-keeping fixation. |
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While we obviously need to monitor our gains and losses, the difficulty comes in when our flexibility to respond is compromised by never being able to get the tally of profit and loss out of our minds. |
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