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Strategies & Market Trends : Aardvark Adventures

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From: ~digs	7/15/2008 11:00:15 PM
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Keeping Open Minds in Roiling Markets: Overcoming Endowment Effects in Trading traderfeed.blogspot.com "We make our greatest trading mistakes when we start managing our emotional responses to markets and stop managing our trades and portfolios. Fear is the enemy of flexibility. When we react out of fear of loss, we are deer in headlights. When we react to a fear of missing a market move, we lurch into trades impulsively, often at the worst times. In each case, we're acting in a way to assuage the fear of the moment, not to address opportunity or its absence. . . . The mindset I have found most helpful for combating the endowment effect is to frame each of my trade ideas as a hypothesis--not as a conclusion--and to clearly articulate the conditions under which my hypothesis is not validated. To be sufficiently committed to a hypothesis that you will test it with trades, but to not be so wedded to it that you ignore the data coming at you: such a scientific stance lies at the heart of trading success, enabling us to focus on managing our money, not our fears."

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