Much of the trading experience has been studied through careful research and study, by the likes of Amos Tversky and Daniel Kahneman and more recently, by Brad O'Dea.
When we leave the cream at the top of their studies we find that investors and sellers often avoid selling losers to avoid feelings of remorse and WHEN they do this they tend to inflict more damage on themselves financially and psychologically.
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Ergo, here we look at the CTD chart for July 2020 (CTD is listed in ASX). It was a two-year decline from $ 33 to $ 12 today.
All the research tells us that if we were a buyer for $ 30 and still hold on today, we would do it for many reasons. Either we are twice as likely to catch someone else, as a financial advisor, or, possibly with our inner mind.
We avoid selling now because:
We will not be responsible for depositing money into our account.
Because we cannot face the fact that we are wrong. We bought up and now we have to sell on what looks like down.
We avoid trading because we hope the stock will sell again for $ 30
There is a financial penalty to avoid regrets in our account. We may hold the position of losing years. The position can be very bad and could end up losing more money.
We engage in wishful thinking by going out at a higher price and when we allow that, we become mentally weak when it comes to all future investments/jobs.
We have lost because of the cost of opportunities - that is the cost of missing out on other winning activities and we cannot use the money tied to CTD because we avoid withdrawing, we lose that money and play a better position elsewhere in the market...
You can avoid defending yourself by doing the following: accept that it is right, accept that you will be right, accept that there is a financial penalty wrong,
accept that the finest finance is incorrectly fined, have a risk trading system and a point that shows you are wrong while another small finance.
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