Chapter 12
Avoiding the Obvious Mistakes
IN THIS CHAPTER
Freeing yourself from reference point dependency
Rejecting the distorting influence of various forms of representation
Breaking free of bad habits and limiting mental and emotional biases
This chapter is all about how easily your judgment can be influenced (in a bad way) and how your (bad) habits can lead you astray. However, you can avoid succumbing to these bad influences and habits by sticking to the rules you've set for yourself as well as to your trading plans. Systematizing trading processes can be a godsend when it comes to preventing harmful influences.
Putting Reference Points in Perspective
If you regularly trade securities on the stock exchange, you know how difficult it can be to deal with losing positions in a rational and non-emotional way. We all tend to measure gains and losses in relation to a specific reference point, which generally ends up being (to no one's surprise) the entry price — the price you purchased the securities for, in other words. The entry price serves as an unintentional psychological anchor. As soon as you enter the market, you start reacting rather touchily, shall we say, to price developments. ...
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