Here's a lesson from the book Why You Win or Lose: The Psychology
of Speculation.
This is an example of how the typical trader procrastinates when it comes to making a selling decision.
A man has rigged up a turkey trap with a trail of corn leading into a big box with a hinged door. The man holds a long piece of twine, connected to the door, that he can use to pull the door shut once enough turkeys have wandered into the box. However, once he shuts the door, he can't open it again without going back to the box, which would scare away any turkeys lurking on the outside.
One day, he had a dozen turkeys in his box. Then one walked out, leaving eleven. "I should have pulled the string when there were twelve inside," he thought, "but maybe if I wait, he will walk back in."
While he was waiting for his twelfth turkey to return, two more turkeys walked out. "I should have been satisfied with the eleven," he thought. "If just one of them walks back, I will pull the string."
While he was waiting, three more turkeys walked out. Eventually, he was left empty-handed.
His problem was that he could not give up the idea that some of the original turkeys would return. This is the attitude of the typical trader who can't bring himself to sell at a loss. He keeps expecting the market and his position to recover.
The moral is: To reduce your market risk, stop counting turkeys.
This is an example of how the typical trader procrastinates when it comes to making a selling decision.
A man has rigged up a turkey trap with a trail of corn leading into a big box with a hinged door. The man holds a long piece of twine, connected to the door, that he can use to pull the door shut once enough turkeys have wandered into the box. However, once he shuts the door, he can't open it again without going back to the box, which would scare away any turkeys lurking on the outside.
One day, he had a dozen turkeys in his box. Then one walked out, leaving eleven. "I should have pulled the string when there were twelve inside," he thought, "but maybe if I wait, he will walk back in."
While he was waiting for his twelfth turkey to return, two more turkeys walked out. "I should have been satisfied with the eleven," he thought. "If just one of them walks back, I will pull the string."
While he was waiting, three more turkeys walked out. Eventually, he was left empty-handed.
His problem was that he could not give up the idea that some of the original turkeys would return. This is the attitude of the typical trader who can't bring himself to sell at a loss. He keeps expecting the market and his position to recover.
The moral is: To reduce your market risk, stop counting turkeys.
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