Some people think that strategy A is more effective than Strategy B because they can justify in certain circumstances that their strategy is able to yield higher profits. While that is undeniable, no strategy is able to win in all situations because the market will always be a little more unreliable than you expect. So what are we to do then? Is there a way to outsmart the market all the time? I argue that there is no such thing but we can always employ a wise mentality when dealing with difficult situations in the market. In short, let us imagine a scenario where the market is reluctant to advance and your sell order is still in the queue. Do you wait or should you lower your price to match the current bid price? In today’s post, we will discuss how having a wise mentality can potentially help you win in almost every situation.
Consider loss due to a missed opportunity to sell
Contrary to what many people might think, I am not talking about FOMO. FOMO is the result of greed rather than fear because it triggers one’s imagination about losing out significantly if they are not a part of some “movement”. At the same time, all these people with FOMO are also aware that the odds of them making a lot of money is low and they might even lose all of their money in the process. So, what I am trying to share is about understanding the potential losses due to a missed opportunity when you could have sold your stocks at a smaller but still decent profit but missed it because you stuck to your selling price despite the market reluctance to go any higher. In such cases, do consider selling and accept the smaller profit to secure your gains. Over time, this will definitely help increase the accuracy of your trades and ensure that your profits are consistent and sustainable.
The market is not cognisant of your entry price
When you are whispering to yourself for the price to move in either direction, then you are probably having the wrong mentality when investing or trading. Essentially, you believe that your desired entry and exit targets are always “reasonable” enough such that you will reach it somehow. However, do remind yourself that it is never truly the case and no matter how reasonable you were, the market might just decide not to cooperate. The mentality that you should have must always be reactive towards the reality which is to expect the market not to move in the way that favors you. In that case, you will always be one step ahead rather than being constantly stood up by the market.
Making paper losses is not a bad thing when investing
Making losses is part and parcel of investing because there are no guarantees when it comes to buying risk assets. In fact, the value of most assets is as stable as its frequency of being exchanged from person to person. As such, price volatility should always be expected and planned for ahead of time. In the case of the stock declining despite consistent execution of averaging down, then be realistic and start executing short-term trades to make your holdings pay rent for the capital you have invested. Personally, I exercise a liberal trading plan for underperforming assets so that I can still make use of them to generate steady income over time. That way, I do not have a liability but instead a tradeable asset at my disposal to generate income for myself.
Closing Thoughts
If I were to summarise my entire post in a few words, those few words would be “be realistic”. Sometimes I feel that most traders and investors fail to make money because of their stubbornness to admit that they are wrong in their targets. Always stay grounded in logic and understand that we are never truly right when investing as the situation will stay fluid and unpredictable.
