A gambler's heart - 2

Trading is not gambling, so a trader is not a gambler !

Would you like to think yourself a gambler or a trader ? Look inside your heart, and think this question for a while ?

Humans thinking, emotion, and reaction to money losses and gains are very very complex and super hard to grasp and quantify. That's why there is a subject called "behavioral finance", many smart people and big investment banks have fully dedicated to this research area. Their goal is to take advantage of common people's mistakes, especially the stupid gamblers' hearts !

Therefore, we need to avoid such bad habits. You know, sometimes, we just can't notice we have bad habits. Sometimes, even we notice them, we just emotionally can not overcome it because it is so painful to overcome it.

For example, human nature makes us very very happy to take "paper"profits in each trade very quickly, but, procrastinate when it comes to realizing "paper" losses.

The big question is "WHY" ?

Because if we close the trade and realize the "paper" loss, we finally lose the hope to break even in that trade. So, it's so painful for human to cut loss quick ! Because they will lose the so called "hope" once the loss is cut !

But, in reality, the "HOPE" associated with a paper loss is, in general, a big trap to make you lose more and more !

On the other hand, the "happiness" associated with a quick paper gain realization is , generally speaking, a trap also.

So, we need to set up rules for selling and buying, and then acting according to the rules, not the emotions. But, the rules may be bad, may be good ! So, we need to learn more and to learn how to set up good rules.