{"id":39368,"date":"2014-11-17T13:03:33","date_gmt":"2014-11-17T18:03:33","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=39368"},"modified":"2014-11-17T13:03:33","modified_gmt":"2014-11-17T18:03:33","slug":"avoiding-losers-and-winners","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/avoiding-losers-and-winners","title":{"rendered":"Avoiding Losers (And Winners)"},"content":{"rendered":"<p><em>*****David Blair, The Crosshairs Trader, is a blogger\/trader\/educator who does a wonderful job of sharing research on elite performance and how it relates to trading. Below is his latest post for the SMB trading community.***** \u2014 Editor\u2019s Note<\/em><\/p>\n<p>Key Point: We will do anything to avoid a loss even to the point of ignoring that we have one, while claiming any small gain as quickly as possible just to say we had one.<\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">We have all heard it said\u00a0\u2026 let your winners run and cut your losers short\u2026 but understanding and then accepting it is quite another matter.\u00a0 We may hear it and we may read it and we may\u00a0nod our heads in agreement but do we really know how to let our winners run and cut our losers short?\u00a0 It is easy to understand but very difficult to apply.\u00a0\u00a0Rest assured there is a really good reason why it is so difficult and why most of us fail at it.\u00a0\u00a0The thought is golden; it\u2019s application\u00a0 elusive. \u00a0 Of course,\u00a0\u00a0the\u00a0academia have a term for our difficulty in applying the thought to our actions.\u00a0 They refer to it as loss aversion.\u00a0 Our actions define it for us.\u00a0 We have a stronger tendency to avoid losses than we do to acquiring gains. In other words, if we had a choice between avoiding a loss versus acquiring a gain the former wins out more often than the latter.\u00a0 No where is this more prevalent than in the stock market.\u00a0 We will do anything to avoid a loss even to the point of ignoring that we have one, while claiming any small gain as quickly as possible just to say we had one.\u00a0 Of course, this turns \u201clet your winners run and cut your losers short\u201d on its head as we let the losers run in hopes of eventual victory while cutting the winners short before they have a chance to claim\u00a0a prize\u00a0in the winners circle.\u00a0<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">The following resources should help us all\u00a0work on applying our\u00a0well intended thought to solid action. \u00a0<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\"><a href=\"http:\/\/www.beinghuman.org\/article\/loss-aversion\" target=\"_blank\">Loss aversion<\/a> neatly explains the phenomenon known as the endowment effect, the tendency for people to place a higher value on something they own than on an identical thing that they do not own.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">An implication of the <a href=\"http:\/\/econ.ucdenver.edu\/beckman\/Econ%204001\/thaler-loss-aversion.pdf\" target=\"_blank\">endowment effect<\/a> is that people treat opportunity costs differently than &#8220;out-of-pocket&#8221; costs.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\"><a href=\"http:\/\/www.dailywealth.com\/1962\/loss-aversion-investor-trap\" target=\"_blank\">Loss aversion<\/a> drives people to simply look away from losses.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">We\u2019re willing to leave a lot of money on the table to <a href=\"http:\/\/www.nytimes.com\/2013\/12\/09\/your-money\/overcoming-an-aversion-to-loss.html?_r=0\" target=\"_blank\">avoid the possibility of losing<\/a>.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">When we invest based on emotions, <a href=\"http:\/\/www.investmentnews.com\/article\/20140505\/BLOG09\/140509965\/the-truth-about-loss-aversion\" target=\"_blank\">we can make bad decisions<\/a> \u2014 decisions that can lead to loss.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">Studies show we experience twice the <a href=\"http:\/\/www.dailyfinance.com\/2009\/11\/28\/investors-stay-in-the-game-loss-aversion-causes-big-losses-ove\/\" target=\"_blank\">emotional impact of a loss<\/a> compared to any pleasure we feel from an equivalent gain.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\"><a href=\"http:\/\/blog.usabilla.com\/how-loss-aversion-and-risk-influence-decision-making\/\" target=\"_blank\">Loss aversion<\/a> is an important factor in more decisions than we probably realize.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">Every good feeling you get from gains will get completely wiped out by the terrible <a href=\"http:\/\/awealthofcommonsense.com\/market-makes-feel-terrible-every-single-day\/\" target=\"_blank\">feelings from the down days<\/a>.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">People strongly <a href=\"http:\/\/www.marottaonmoney.com\/10913\/\" target=\"_blank\">prefer avoiding losses<\/a> to seeking potential gains.<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">\u00a0<\/span><\/p>\n<p><span style=\"font-family: 'Trebuchet MS'; font-size: small;\">Now let\u2019s get to work on not only on our winning but on our shorting.<\/span><\/p>\n<p style=\"color: #222222;\"><strong>David Blair<\/strong><\/p>\n<p><strong>THE CROSSHAIRS TRADER<br \/>\n<a href=\"http:\/\/www.thecrosshairstrader.com\/\">www.thecrosshairstrader.com<\/a><\/strong><\/p>\n<p>no relevant postions.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>*****David Blair, The Crosshairs Trader, is a blogger\/trader\/educator who does a wonderful job of sharing research on elite performance and how it relates to trading. Below is his latest post for the SMB trading community.***** \u2014 Editor\u2019s Note Key Point: We will do anything to avoid a loss even to the point of ignoring that we have one, while claiming &#8230; <a href=\"https:\/\/www.smbtraining.com\/blog\/avoiding-losers-and-winners\" class=\"more-link\">Read More<\/a><\/p>\n","protected":false},"author":290,"featured_media":35366,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1935,456],"tags":[3441,593,1609,848,1420,144],"class_list":["post-39368","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-david-blair","category-trader_development","tag-enhancing","tag-failure","tag-learning","tag-lessons","tag-performance","tag-trader"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Avoiding Losers (And Winners) | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/avoiding-losers-and-winners\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Avoiding Losers (And Winners) | SMB Training\" \/>\n<meta property=\"og:description\" content=\"*****David Blair, The Crosshairs Trader, is a blogger\/trader\/educator who does a wonderful job of sharing research on elite performance and how it relates to trading. 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