“HOPE” Kills More Accounts Than Stupidity by Avi Gilburt
Let’s be honest. I am quite sure that you have entered into the foray of the financial markets because you seek profit and you desire to grow your net worth. But, I hear too many people arguing with my articles due to perspectives of seeking “fairness” in the financial markets. So, let’s get real. Life is not “fair.” Deal with it, and learn how to adapt to put the probabilities on your side so you can grow your net worth.
So, when I hear people complaining about various reasons they have lost money, it tells me that they entered the market based upon “hope” rather than with an understanding of the market. And, this clearly applies to analysts as well. Remember, just because someone posts an article on the worldwide web does not mean they know what they are talking about or are even accurate in their assessment.
Some analysts even promise you the road to riches. Some provide you with “guarantees.” Some even tell you that you are stupid if you don’t follow their advice. But, the market makes no such promises and guarantees. And, the only thing that is stupid is following such advice with “hope” rather than common sense. In fact, common sense is a commodity more rare than gold itself.
When you first enter your trade in the market, too many people only see the positive side of what may occur to their money. Whether it is because you are being told that the market will provide you the riches you seek or simply because it is from a “gut feeling,” trading on such hope without having an action plan should things not go as you expect places you on the road to ultimate disaster as it relates to your investment account.
So, when I see investors complaining about following an “analyst” in buying a triple leveraged long ETF near the peak of a market as an “investment,” without using stops, and then proceed to lose 75% on the trade within two months, one has to wake up and realize that something is wrong.
First, I have addressed many times in the past why triple leveraged ETF’s are not “buy-and-hold” vehicles, but only short term trading vehicles. http://www.gold-eagle.com/article/are-you-caught-leveraged-etf But, the next question I have is why one would hold such a vehicle when the market turns against you strongly? And, I can answer that question in one word: HOPE.
Whether you were dishonestly promised riches by the analyst you follow, or whether you simply had a feeling about the market in the way people get a feeling about horses, begin to recognize that there is no room for HOPE in financial markets. Rather, each and every time you place money in the market you had better have a plan. As Ben Franklin said, “by failing to prepare, you are preparing to fail.”
So, each time you put your money into the financial market jungle, you MUST have a plan. That means, you must know where you want to enter the market, you must have an exit strategy as to when you want to take profit, and you must have an exit strategy in case the market goes against your position. And, it’s the last aspect of the “plan” that is probably most important for you to continue in the marathon of investing through your lifetime, rather than turning into an overnight get-rich-quick sprint.
When you enter your investment or trade, you usually see the potential for big profits before you. Very few people even consider the possibility that they may lose money. I remember when I was a kid and used to watch re-runs of the Honeymooners. And, Ralph always comes up with these crazy get-rich-quick schemes without any real thought to their underlying stupidity. But, that was a comedy show. Yet, so many approach the financial markets in the same way and no one is laughing when they lose money.
So, what is the cure for this ailment we call HOPE? The only cure known to man for the ailment of HOPE is learning to use stops on your investments or trades. And, to be honest, I don’t care whether your parameters are percentage losses, or specific levels based upon a technical analysis methodology. Unless you learn to use stops, you will wind up taking massive unnecessary draw-downs like in the case noted above, or like those that held silver through the 75% decline from 2011-2015. And, guess what each and every one of them had in common during their respective declines? Yes, you got it . . . HOPE.
When an individual comes through our doors at Elliottwavetrader.net, they get a letter from me, which includes the following admonishment:
“There is an old adage that when you fail to plan, you plan to fail. So, before you enter any trade, you MUST have a trading plan. And, most importantly, you MUST adhere to that plan, and not fall into the “hope” that grips most new traders.
The inexperienced traders will sit in a position until it turns in their favor, if it ever does. Develop a plan BEFORE you enter into a trade, and stick to it. This is setting you up for what traders view as “cutting your losses short and letting your profits run.” Remember, the goal is not letting your losses run until they finally turn in your favor. The money can be better utilized in another opportunity to make money rather than lying dormant or continually losing.
HOPE AND BEING OVERLY AGGRESSIVE BLOWS UP MORE TRADING ACCOUNTS THAN ANYTHING ELSE.”
So, consider this part of my “open-letter” to you.