The Stock Market Ego Trap

In the stock market game there is a series of basic rules that every speculator or investor should follow along with, in terms of total rationality to have success in the stock exchange market.

• Buy stocks at a low price and then sell them at a higher price.
• Allow the profit to run but to cut the losses quickly.
• Hang onto winning positions but never to positions where one could lose.
• Go along with the tendency.

For any speculator that follows these rules which are so simple to understand, it should be impossible to beat the market. The question is why is it so difficult to follow them? The problem resides in us and not the rules itself. For example, it will often times happen that we will act very quickly when we purchase stock at high prices to then sell them at low prices. This doesn’t make sense. There are many reasons this happens and also many excuses to justify oneself in where a person feels he is not able to resist the temptation of taking advantage of the real data the broker gave, or the information a friend talked about who works in that company and had privileged information that had not been published or, since everybody else was buying I felt like joining in on the party as well. There will be many reasons why a person suddenly sees himself stuck in the wrong situation and we will also find very human excuses to confirm how naïve this person has acted.