Agoracom Blog

Why (Bad) Stock Traders Find The Possibility Of A Payoff Is More Exciting Than Actually Getting One

Posted by AGORACOM at 8:00 PM on Monday, August 17th, 2009
Do You Mindlessly Change, Or Intelligently Stalk?

Do You Mindlessly Chase, Or Intelligently Stalk Your Investments?

If you have found yourself regretting not taking healthy profits in a stock, promising to never make the same mistake again – only to repeat the mistake multiple times – then you need to read this article .  Why?  It explains why you’re wired to find the possibility of a payoff to be much more stimulating than actually getting one.

Originally written to explain why people are so hooked on Google, Twitter and texting, I found the science to be very applicable to stock traders that chase stocks but fail to close profitable positions.

Ignore it at your peril – but those who read it could find themselves transitioning from a trader engaging in mindless chasing” to one that engages in intelligent stalking behavior.


5 Responses to “Why (Bad) Stock Traders Find The Possibility Of A Payoff Is More Exciting Than Actually Getting One”

  1. leo polenta says:

    My rules to profits have always been simple. I always set a sell target, typically between 15 and 30 percent gain. I also put a stop loss in place typically between 15 and 20 percent.

    Lastly, if the stock is a real runner I apply a trailing stop which is a great way to realize gains even if the stock has an off day once in a while.

  2. Eric T says:

    Thank you. George

  3. JC says:

    Interesting article, I’ve been there many times before. It’s extremely important to have discipline when you are trading stock and MOST importantly check your emotions at the door!

  4. AGORACOM says:

    Eric, glad you found the article to be helpful. Without a doubt, the way to break the mindless chasing cycle is as follows:

    1] Realize the chances of making 1 “big kill” in the markets is slim to none. Very few people buy at the bottom and sell at the absolute top.

    2] Put strict selling rules in place once you’ve bought a stock. Specifically, we use the following rules for long-term positions.

    * Sell half on a double (100 shares = 50)
    * Sell half again on another double (50 = 25)
    * Keep selling half on further doubles (25 = 12.5 = 6.25 = …)

    Knowing that stocks do not go up in perpetuity, you also have to have a stop loss in place. I like to set my last selling point as a stop loss point in which I sell my entire remaining position.

    When it comes to short-term trading, you’re on your own. However, make sure to set sell targets in advance and stick to them!

    3] Never regret a sale. Stock prices may continue to rise after you sell. Don’t fret about it. You took cash off the table and no longer have to be concerned with holding the bag.


  5. Eric T says:

    Thanks George, what do you suggest to break this mindless chasing cycle?
    How to develop healthy tradeing habit?