【Episode 1】Why do we repeat "taking profits too early" and "delayed stop losses"?【Trading and Brain Bugs Episode 1】 copy
※ It seemed the first serialization post was missing, so I’m reposting it.
I am Pro Trade Coach Max.
From today for several installments, I will talk about the mindset and brain bugs that are just as important as trading techniques.
I receive many inquiries daily, but the two most common concerns among them are shown below.
・ Wanting to take profits as soon as there is a paper profit (chicken profit)
・ Even if losses grow, it’s hard to cut losses, leading to a prayer-like trade
“If I just follow the rules, I know what to do in my head, but once I hold a position, I’m ruled by emotions. This isn’t because your will is weak. It’s caused by a brain bug that our human survival instincts trigger.”
The behavioral economics’ “Prospect Theory” beautifully proves this phenomenon.
For example, choosing between “you will surely receive 100,000 yen” or “you will win 200,000 yen if you win the coin flip, but zero if you lose.” Many people choose the certain 100,000 yen. However, when it becomes a choice between “you will surely lose 100,000 yen” or “you will lose nothing if you win the coin flip and lose 200,000 yen if you lose,” people suddenly choose gambling (the latter).
Humans have a powerful instinct: when profits are looming, they want to avoid risk and lock in gains; when facing losses, they tend to take risks to avoid them.
If you bring this instinct into the market as is, you will inevitably experience “small gains and large losses,” and your account balance will continue to drain. The only way to resist this instinct is to challenge the market with a systematic absolute rule that leaves no room for subjective feelings.
? Two Paths to Break Brain Bugs and Move Toward a True Autonomous Winner
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Next time, we will explain the identity of the hesitation to enter at peak opportunities.
Pro Trade Coach Max