Law of Reversibility
Updated
This theory is based on the Law of Suggestions that you can find in many psychology books or self development on the human mind.
Consider this article for a moment.
If you have only 5 seconds to glance through, I bet the keywords that stays in your mind will be
severe and self off
And the Media are well aware of this and when they put up the article, they too spent time on choosing the right headlines that sells the sizzles, that hit fast to the mind of humans. Don't forget there is fierce competition out there and many analysts, traders, etc will not have the world of time to digest each and every piece of article.
They rely on headlines or at the most the first paragraph so that they can act fast to buy or sell.
Let me break it down for you what happens when this piece of information enters your mind :
1. think about it
2 feel about it
3. decide what to do about it
4 act on it
So, if you are long on your positions, say SPX500 as an example, this could be what you might do :
1. hmmm, could the author be right ? What if a sell-off comes ? worse, a severe one ? wouldn't that wipe out my profits ? should I sell now?
2. I feel uneasy , I can't sleep at night, I feel I need to do something about my positions
3. I decide to trim down my position size next week, maybe take some early profits (after all - a bird in hand is worth two at the bush)
4. The pressure on 2 builds up and it spurs you to act on it - ie, you sold some of your positions and immediately, you felt a sense of relief.
What happens after a week?
The market continues to charge higher, in fact it rallys up another 12$% ,causing you to lose a potential profit of another 1000 dollars.
You begin to curse and swear at yourself , then you reminded yourself of the article you read and re-read again and the guilt, shame, pain , all combined into one makes you feel pretty lousy. You felt you had been short-changed and promised never to repeat the same mistake again.
Until the next article is published ............
In applying the Law of Reversibility, you become fully aware of what you are reading. You verify if the information is correct by checking on your chart. Is it a normal correction in a bullish move that the author was claiming to be a severe sell-off ? Did you have your SL in place ? How far was the current price from your target ?
What is your time horizon in buying this stock or index ? Short term, medium term or long term?
Do you. have a reliable trading strategy to fall back on ? Example using trend line , support and resistance or moving averages ,etc.
Did you back track to 10-20 years on your charts and see if such negative comments by the press comes true or the reverse ? Is there a patten you can map out ?
If you are buying into a company, what is the fundamental like ? Is it in the growth industry or sun-set industry ?
By asking yourself objective questions like this and doing your due diligence, you become your own Sherlock Holmes, only believing the evidence you gathered on your own. Don't be lazy and listen to these experts and act on it blindly, be it fear or anything else (these guys are from top investment banks, surely they know more than me). The last sentence is the most misleading when comes to trading and investment. Just because someone has a CFA does not make him a better trader.
If you have done your homework and you act on it and the price still shoot up after you sell, at least you learn something from it. Go back to the drawing board and re-evaluate what is the missing puzzle. This step by step real life learning is precious, valuable to the point that nobody can take away from you.
There is no failure, only feedback so use these feedbacks to improve on your trades. Don't trade mechanically, be a smart trader, be mindful of your incoming and outgoing funds. And that could also be a danger as it is virtual, you don't see it , touch it so transferring funds in and out can become a routine for some and as they top up more and more, they lose touch of the pain of losing the money , they just follow the path that leads them lower.
Recognise that only you and you alone can make the change. You can reverse the loss and turn it into a profit. Have the courage to face it and build a story so compelling that your children children would never forget.............
Consider this article for a moment.
If you have only 5 seconds to glance through, I bet the keywords that stays in your mind will be
severe and self off
And the Media are well aware of this and when they put up the article, they too spent time on choosing the right headlines that sells the sizzles, that hit fast to the mind of humans. Don't forget there is fierce competition out there and many analysts, traders, etc will not have the world of time to digest each and every piece of article.
They rely on headlines or at the most the first paragraph so that they can act fast to buy or sell.
Let me break it down for you what happens when this piece of information enters your mind :
1. think about it
2 feel about it
3. decide what to do about it
4 act on it
So, if you are long on your positions, say SPX500 as an example, this could be what you might do :
1. hmmm, could the author be right ? What if a sell-off comes ? worse, a severe one ? wouldn't that wipe out my profits ? should I sell now?
2. I feel uneasy , I can't sleep at night, I feel I need to do something about my positions
3. I decide to trim down my position size next week, maybe take some early profits (after all - a bird in hand is worth two at the bush)
4. The pressure on 2 builds up and it spurs you to act on it - ie, you sold some of your positions and immediately, you felt a sense of relief.
What happens after a week?
The market continues to charge higher, in fact it rallys up another 12$% ,causing you to lose a potential profit of another 1000 dollars.
You begin to curse and swear at yourself , then you reminded yourself of the article you read and re-read again and the guilt, shame, pain , all combined into one makes you feel pretty lousy. You felt you had been short-changed and promised never to repeat the same mistake again.
Until the next article is published ............
In applying the Law of Reversibility, you become fully aware of what you are reading. You verify if the information is correct by checking on your chart. Is it a normal correction in a bullish move that the author was claiming to be a severe sell-off ? Did you have your SL in place ? How far was the current price from your target ?
What is your time horizon in buying this stock or index ? Short term, medium term or long term?
Do you. have a reliable trading strategy to fall back on ? Example using trend line , support and resistance or moving averages ,etc.
Did you back track to 10-20 years on your charts and see if such negative comments by the press comes true or the reverse ? Is there a patten you can map out ?
If you are buying into a company, what is the fundamental like ? Is it in the growth industry or sun-set industry ?
By asking yourself objective questions like this and doing your due diligence, you become your own Sherlock Holmes, only believing the evidence you gathered on your own. Don't be lazy and listen to these experts and act on it blindly, be it fear or anything else (these guys are from top investment banks, surely they know more than me). The last sentence is the most misleading when comes to trading and investment. Just because someone has a CFA does not make him a better trader.
If you have done your homework and you act on it and the price still shoot up after you sell, at least you learn something from it. Go back to the drawing board and re-evaluate what is the missing puzzle. This step by step real life learning is precious, valuable to the point that nobody can take away from you.
There is no failure, only feedback so use these feedbacks to improve on your trades. Don't trade mechanically, be a smart trader, be mindful of your incoming and outgoing funds. And that could also be a danger as it is virtual, you don't see it , touch it so transferring funds in and out can become a routine for some and as they top up more and more, they lose touch of the pain of losing the money , they just follow the path that leads them lower.
Recognise that only you and you alone can make the change. You can reverse the loss and turn it into a profit. Have the courage to face it and build a story so compelling that your children children would never forget.............
Note
The gap is filled up nicely.......
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