Humility: The Key to Trading Success

Apurva Sheth
A few days back, I wrote to you about averaging down your stocks. Averaging is a strategy where you buy additional shares of a stock you already own after it drops below your initial purchase price.

Institutions use this strategy to enter the stock in a deliberate manner. Retail traders, however, tend to use this strategy incorrectly, often as a tool to cover their mistakes.

Let's face it...nobody likes to be wrong, especially when the result means losing money. But far too often, retail traders respond irrationally when faced the possibility of being wrong and losing money.

They add more shares to bring down their cost and then hold, expecting a move back to the original price. This is the complete opposite of what they should do. Rather than dig themselves into a deeper hole, they should cut their losses and exit the trade.

Why is it so difficult for us to accept when we are wrong? Why can't we admit our mistakes?

Have you noticed that we sometimes change our minds without hesitation...but if someone tells us we are wrong, we resent the imputation and harden our hearts? We love our beliefs and stick to them when someone proposes a different view. It isn't our ideas that are threatened but our self-esteem.

Trading is a business that will challenge your self-esteem daily. Markets can prove you right or wrong in a matter of minutes and you don't even have the option to argue with it. You may have your own views and forecasts, but markets couldn't care less. They will do what they will.

If you want to trade successfully for a long time, humility is a must. Humility, and a willingness to accept defeat as graciously as victory, is the key to trading success.

Do you think being humble helps in the markets? Share your views in the Club or share your comments here.

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3 Responses to "Humility: The Key to Trading Success"
Jagdish Rai
27 Jan, 2016
Personally, I do not believe that trying to average, in a good stock,has anything to do with one's ego. The suggestion that one should straightway exit the stock to cut losses is oversimplification of a complex situation. In the end, it all depends on which kind of stock we are dealing with and what are the chances of recovering our losses. Recently, I was able to recover my losses in Balrampur Chini by averaging. Though I missed the bus because of my greed, I would have achieved the same result in Tata Steel and Sintex. So it all depends on the quality of stock one is confronted with. Of course, one should not average a dud stock, but then one should be smart enough not to buy a dud, though most of do buy such stocks for whatever reason.Like (1)
Veerendra Kumar
14 Jan, 2016
Very true but one should have his own views based on information Like 
13 Jan, 2016
A very important and pertinent point you have highlighted nicely every investor should understand apply.Like 
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