Why does “minimizing losses” lead to a mindset of cutting funds?
Many people are taught this way.
・ Cut losses shallow
・ Losses small
・ Be aware of risk-reward
At first glance, nothing seems wrong.
On the contrary, it looks like the very “correct” approach.
But what has the reality been?
We keep losses to a minimum.
We also adhere to the rules.
Yet, only our funds keep shrinking.
Why is that?
The answer is simple and cruel.
“Minimize losses” = “place stop-losses in conspicuous places.”
When you try to minimize losses,
stop-losses inevitably tend to
- cluster just beyond the recent highs and lows
- a round-number price
- to anyone, “If this level breaks, it's bad.”
that is where they gather.
In other words,
they become the easiest spot to be hunted.
For oneself
a stop-loss that one thinks is being protected
is actually
the most obvious marker for the market
to see.
The problem isn’t the “stop-loss.”
It’s easy to misunderstand here, but
- stop-losses are bad
- the textbook is lying
That isn’t what I’m trying to say.
The problem is just one thing.
The same place, for the same reason, too many of the same stop-losses gather
—that is a fact.
The market isn’t looking at whether something is “correct.”
It only looks at whether it is being gathered.
What we have been doing without realizing it
without realizing it, we have
- placed our funds at price levels where big players want them
- they are announced carefully
- and we have left our funds there
That
was the true nature of the “dollar-cost averaging” (drip-drip crash).
Here, I would like you to pause once.
If,
- you are following the rules
- your stop-losses are correct
- but you still don’t get results
then, what you should doubt is
not the method but the premise.
In the next discussion,
we will see what happens if we reverse this “gathering place.”
What would occur?
And,
why many people fail to notice it.
That is what we will discuss.
