"I thought of them (the stocks he bought) as something belonging to me, like members of my family. (...) This state of mind lasted until I realized that my pet stocks were causing me my heaviest losses."
Nicholas Darvas
Perhaps back in Darvas's days this phenomenon had no name, nowadays there are some badass social-economic scientists calling it "endowment effect". That's a key human bias.
Among other effects, it entails that what you lose hurts more than the pleasure you get when you win. Or put differently, you're naturally built to reluctantly give away that which is already yours.
This human bias, in specific, is what causes you to hold on so dearly to the stocks you own. It is what causes you to hold onto even the stocks that are smashing your P&L. Why? Because once you sell them, you will officially be recording a loss ... and losses are just so painful, right? I'm sure you know what I'm talking about.
This heuristic and it's repercussion in trading leads me to an important point I keep on underlining:
Trading is not hard because you need to command technical analysis’ concepts and all sorts of patterns. That's the basic and easy part. Trading is hard because as human beings, we are hardwired with dozens of these heuristics. You will only make money once you start being able to acknowledge their existence and learn how not to fall prey to them.
In other words, profitable trading implies deeply counter-intuitive behavior.
Do you have what it takes to act against your nature?
On the easy-part-of-trading section, today I brought you $ABNB - Airbnb.
Link in bio for in depth analysis.
Nicholas Darvas
Perhaps back in Darvas's days this phenomenon had no name, nowadays there are some badass social-economic scientists calling it "endowment effect". That's a key human bias.
Among other effects, it entails that what you lose hurts more than the pleasure you get when you win. Or put differently, you're naturally built to reluctantly give away that which is already yours.
This human bias, in specific, is what causes you to hold on so dearly to the stocks you own. It is what causes you to hold onto even the stocks that are smashing your P&L. Why? Because once you sell them, you will officially be recording a loss ... and losses are just so painful, right? I'm sure you know what I'm talking about.
This heuristic and it's repercussion in trading leads me to an important point I keep on underlining:
Trading is not hard because you need to command technical analysis’ concepts and all sorts of patterns. That's the basic and easy part. Trading is hard because as human beings, we are hardwired with dozens of these heuristics. You will only make money once you start being able to acknowledge their existence and learn how not to fall prey to them.
In other words, profitable trading implies deeply counter-intuitive behavior.
Do you have what it takes to act against your nature?
On the easy-part-of-trading section, today I brought you $ABNB - Airbnb.
Link in bio for in depth analysis.