Your Hope is Wrong
"He must fear that his loss may develop into a much bigger loss, and hope that his profit may be come a big profit."
For the next few weeks, we will be using quotes from Edwin Lefevre and his masterpiece trading book, “Reminiscences of a Stock Operator.” Enjoy!
Hope and Fear—Gone Awry
The stock market is an interesting, twisted little place. When humans in survival mode meet together—our basest instincts seem to run our actions. And those instincts create a market where all of our normal, naturally honed instincts, create the very market hype that tends to destroy us.
Said in another way—the market has a tendency to place the hurt where the majority of people suffer.
This is why our psychology is so important. In order to win in the market, we must learn about ourselves, and work to direct our natural tendencies in a different direction—one that puts logical decisions ahead of emotional reactions.
Here is how Edwin Lefevre—one of the greatest traders that ever lived—puts it.
“The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you you hope that every day will be the last day—and you lose more than you should had you not listened to hope—to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take a way your profit, and you get out—too soon.”
-Edwin Lefevre
We Are Naturally Wrong
What this means is, we are wrong. By nature, we are wired to be wrong when it comes to the stock market. And this may sound like something that is easy to correct—but our base instincts can be so strong, that, in the moment, it can be very difficult to see.
He continues…
“Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may be come a big profit. It is absolutely wrong to gamble in stocks the way the average man does.”
-Edwin Lefevre
In order to be successful in the market, we must get a handle on our hope and fear, we must learn to see where we hope and fear, and then we must completely reverse the decisions we want to make in order to make the decisions we need to make.
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