There are a few true facts about humans. Most are followers – many are not leaders. We all seek instant gratification – wanting to skip the hard work in between. Even if you know this, it’s still hard to go against it when a tip is presented to you to make your life easier.
Let me tell you the story of two traders. One of my friends was staying at my house for a bit. We were still in the early days of trading, and he set up his computer setup in the other room. It almost felt like we’re roommates even though we were out of college. We just wanted to interact during market hours, play concepts off of one another. He had his screens and I had mine.
We started going about our day and one stock in particular which we both owned – I was long and he was short. (I can not remember the stock at this point in time). He was looking at it from the short side and I was looking at it from the long side.
The day goes by and we had various interactions about the direction of the stock. I started to doubt myself and ended up selling my shares.
So what did the stock end up doing? It went down for the day and then popped back up higher than ever over the next week.
What’s the lesson?
After me and my friend talked, he was trading on a day-to-day basis. He wasn’t looking to trade for more than 2 days. As for me, I was looking at a longer-term horizon such as a week, maybe more. Lesson learned that you should always stick to your own rules and your own trading strategies. We were both right but our time horizon was different. Doubt caused me to make changes in my plan or strategy. It’s a psychology game, so stick to your rules and your strategies.