Read a great thesis on position sizing tonight. The author quoted someone who talked about fear and hope, it struck a cord with me.
"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 hope that every day will be the last day – and you
loose more than you should had you not listened to
hope – to the same ally that is so potent a successbringer
to empire builders and pioneers, big and little.
And when the market goes your way you become
fearful that the next day will take away your profit, and
you get out – too soon. Fear keeps you from making as
much money as you ought to. . . . Instead of hoping he
(The successful trader) 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
become a big profit. It is absolutely wrong to gamble in
stocks the way the average man does.” (Lefèvre,
1923/1993, p. 130)
I have been doing much better on cutting losses short lately, long before they get to my stop, but I still struggle with the concept of letting a profit run. Something to work on for the new year.
"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 hope that every day will be the last day – and you
loose more than you should had you not listened to
hope – to the same ally that is so potent a successbringer
to empire builders and pioneers, big and little.
And when the market goes your way you become
fearful that the next day will take away your profit, and
you get out – too soon. Fear keeps you from making as
much money as you ought to. . . . Instead of hoping he
(The successful trader) 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
become a big profit. It is absolutely wrong to gamble in
stocks the way the average man does.” (Lefèvre,
1923/1993, p. 130)
I have been doing much better on cutting losses short lately, long before they get to my stop, but I still struggle with the concept of letting a profit run. Something to work on for the new year.
