Investors who cannot calmly judge the necessity of cutting losses will suffer a fatal blow

Frequent investors who suffer fatal wounds tend to be prone to self-destruction due to their own greed. Investors who cannot cut losses on positions that are in the red are reluctant to close out and realize the losses, and their minds waver trying to justify holding on with the belief that they might reverse because past rules of thumb often led to reversals right after cutting losses, so not giving up hope and going holistically is the best approach.

Investors who cannot cut losses will certainly go bankrupt no matter how much capital they have. Conversely, those who cut losses too much and erode their assets to death also definitely go bankrupt.

Why is that?

The answer is that they cannot accurately judge whether there is a necessity to cut losses. If there is no need to cut losses but one cuts them out of obedience to a rule, they become loss-cutting-poor; if they cannot decide to cut losses when a fatal wound is imminent, they suffer a fatal blow after agonizing over it.

After all, as humans, it is natural not to want to admit a loss, and because greed makes them seek a 100% win rate, right?

But in that case, it is human nature to want to justify positions in loss, to avert one's eyes from unrealized losses and begin escapism. And the moment losses become unacceptable, they panic and cut losses, incurring fatal damage.

Investors who misunderstand the meaning of cutting losses are fools. Even profitable investors cannot accurately decide whether to cut losses or not when forming positions unless there is a clear basis.

Admit that your judgment is wrong, go no-position, and restart from the beginning—that is the essence of cutting losses.

They endure unrealized losses, but a sudden plunge panics them, and they throw away in despair. If they want to survive and sell, the market reverses with an oddly high probability, making the market terrifying.

Right now, if you don’t cut losses you won’t survive; panicking at the bottom and cutting losses, with you crying over late entry as a beginner.

A mid-level trader who repeats meaningless losses by following the rules and becomes loss-cutting-poor.

There are many investors who cannot calmly judge the necessity of cutting losses; after admitting their mistakes and closing positions, few are skilled enough to watch and wait while analyzing charts for opportunities.

The essence of the financial markets is that they are relative transactions and a zero-sum game, and if you understand this to your core, reading the movements of candlesticks becomes easier.

If you understand this, you can also read the aims of the algos used by manipulators in automated high-speed trading, and you can read their motives, so you can accurately determine whether there is a need to cut losses.

I imagined the fate of a dreamer who gambles with excessive capital on high leverage. Capital: 3 million yen. USD/JPY position of 300,000 units. With this level of trading, whether you can profit depends more on the investor’s ability than on luck or fate.

To put it simply, with 100 trials, calmly and steadily building up transactions is low-leverage trading; failing will incur fatal damage, but aiming for a one-shot kill is high-leverage trading. Investors who cannot manage capital inevitably take fatal damage in high-leverage trades and are doomed to financial ruin.

The feeling of investors who escape reality from unrealized losses. Even if you regret why you bought at that time, time cannot return. Well, you would have bought because you were intoxicated by total optimism and fell into cognitive biases, dreaming along with the stock price (o^-')b

You can no longer go back to that time (ノД`)・゜・。

Unrealized losses that continue to grow are the reality, and escaping reality won’t change that. The rule is to cut losses the moment the justification for the position collapses, and if you cannot execute that, you endure and endure until you can’t, panicking and cutting losses, incurring fatal damage.

Even losing investors actually know this. Even if you are satisfied with hype-buying, hype-selling, and position-talk that indulges reality avoidance, unrealized losses will never recover… right?

After unrealized losses occur, searching for information favorable to yourself to feel secure is an early symptom of reality avoidance. Essentially, position-talk is about seeking information to justify your own position and arming yourself with theories; if you cannot analyze objectively, you will end up holding unrealized losses and not wanting to cut, trusting your own position-talk to the last moment and sinking into the deep sea.

Because position-talk skews psychological biases, thinking becomes paralyzed, and even advanced traders endure losses they cannot tolerate and take fatal damage. Even advanced traders make mistakes. It is not a hundred-percent win rate... so when the basis for your position collapses, consider retreat.

A method to cure the legendary position-itis, known as the incurable 'posi-posi disease' What exactly is posi-posi disease?

Probably, when you haven’t formed a position, you panic because you fear missing opportunities and end up posi-posi-ing; I think its cure is to clarify trading rules and wait and observe until a buy signal appears.

And if, after forming a position, you stay mindful not to let psychological bias tilt and can determine the timing to close, posi-posi disease will be cured. After closing, decide whether to flip to a short or stay observing while analyzing charts for a clear buy signal.

If you have confidence in fundamental analysis, will you always win?

First of all, if you compare and verify the sources of information for fundamental analysis, you will realize that market participants’ trading environments are not equal. In particular, individual investors are forced to trade in disadvantageous conditions. Even Zhuge Liang (Kongming) would not have access to much information or fresh data, so if I had access to the same, I could beat Zhuge Liang.

Of course, under the condition where you can access all information at the fastest speed. If you know this fact, you should also understand the danger of relying solely on fundamental analysis. Moreover, information that reaches individual investors is largely priced in, and mixed with biased information, so even with talents comparable to Zhuge Liang, you will be deceived.

Moreover, candlestick movements are the result of all information priced in; my mentor used to say this until his voice became hoarse. Fundamental analysis is necessary to grasp the overall market from a holistic view, and when you compare candlestick movements with fundamentals, you gain useful information, so both candlestick movements and fundamental factors are important.

In this fundamental factor, this price movement is certainly strange. Even so, it may just be that you are incorporating fundamental factors you do not know yet (o^-')b