Rule not in place
“Kotsukotsu Dokan” is not a personality trait. It’s the absence of rules
It’s not a matter of personality, it’s simply that there are no rules.
“Gradually accumulate small profits, and occasionally take a big hit all at once” — commonly known as kotsukotsu-dokan. Traders who struggle with this often say, “I have a personality that tends to kotsukotsu-dokan.”
But I will state it clearly.Kotsukotsu-dokan is not a matter of personality. It’s a problem caused by the absence of rules.As long as you blame it on your personality, this problem will never be resolved.
Kotsukotsu-dokan occurs through a clear mechanism. By understanding that mechanism and establishing proper rules, anyone can prevent it. There is no need to change your personality. Just create rules.
The mechanism by which kotsukotsu-dokan occurs
Kotsukotsu-dokan happens from the combination of two actions.
The first is“to take profits early”When there is unrealized profit, the psychology of “I want to secure profits before they disappear” kicks in, and you close the position too soon. Therefore, each individual profit becomes small (kotsukotsu).
The second is“unable to cut losses”When there is an unrealized loss, the psychology of “I don’t want to realize the loss” and “it will come back someday” kicks in, delaying stop-losses. Therefore, each individual loss becomes large (dokan).
When these two are combined, the worst pattern emerges: “small profits accumulate steadily, and a large loss wipes them out with one blow.”This is not a matter of personality; it happens because there are no rules for taking profits and cutting losses..
・Profit → the psychology of wanting to realize quickly → realize profits small (kotsukotsu)
・Loss → the psychology of not wanting to realize → postpone cutting losses (dokan)
The cause is not “personality,” but the fact that the criteria for taking profits and cutting losses are not decided.
It leaves judgment to emotion.