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This is a site for investors and traders of all experiences and all backgrounds. My intent is to make concepts understandable for the novice investor as well as the experienced trader. The mission is to educate the investing public by bringing to light vital tools and information necessary to make money in the stock market.



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Monday, November 8, 2010

An Investor's Biggest Mistake

An investor's ego is the major reason why beginning traders are drawn to discretionary trading. Discretionary trading feeds the ego; it is trading that relies on one's judgement, in contrast with systematic trading, where trading decisions are made by using rules that specify exactly when and how much to buy and sell. So when you use your judgement to trade and you win, the ego wins. You can brag to your fiends how you are the master of the markets.

I see this particular behavior constantly on online trading forums - especially the broad-based ones that attract new traders. You regularly see posts from individuals bragging about how they bought just before the run-up, or they have found the Holy Grail and have 90% accurate system, or they have been trading for three months and have made 200%. They invariably have done this by trading with too much leverage. A few months later you may see the same trader post that they have blown up their account and lost everything. These individuals were trading to feed their egos, and as the saying goes, live by the ego, die by the ego.

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