It is a tool used by those who wish to produce an “aura” of knowledge and experience to try to impress novice traders with their trading success especially in times of stress.

Here are a few common fabrications:

  1. “I beat the market”

Pride and greed are the two most common deadly sins of investors/traders. Beating the market to produce a better than average return is commendable but not by increasing the risk at the margin of what is a successful trade. Greed increases risk profile.

Remember when you reach your take profit level or your stop is hit, it is time to exit. If you don’t you are either adding risk or being simply greedy. Pride starts where greed stops and is the anticipation of being able to tell other traders “I beat the market”.

  1. “Stay with it and make even more money”

The U.S. equity market is three times higher than it was in 2009. However, it has not been a straight-line move. Even a long only investor could have lost money by bad timing.

An investment makes money, then the next and the next, and suddenly, the investor feels invincible. The market reacts to news and crashes of in certain cases flash crashed. What to do? The gains of the previous three trades are wiped out.

Go back to basics and consider the next investment as the first.

Anyone doing this will have to lengthen their time horizon to show even a decent return. Look out for changes.

  1. It’s “their fault”

It doesn’t matter who they are. It could be the FOMC, it could be Kim Jong Un. But whoever it is “they” will always screw up your position. A combination of technical and fundamental analysis, economic knowledge and growing experience will act as a shield but in the end, watch out for “them” and be prepared!

  1. “My capital is always rising!”

Is that because you are constantly adding to it from savings? That is not so good and stems from pride. No one wins all the time. It is hard to be an investor. That is why “free” income from deposits is so low.

Take your time. Take the hits. Know why you lost money. It is never luck!

  1. “It’s just a paper loss”

Who hasn’t told themselves this?

A loss is a loss. NO matter how its dressed up. If it walks like a duck and quacks like a duck, it’s a duck!

A loss doesn’t have to be crystalized to be a loss. It materially affects you ability to trade if nothing else. Unrealized losses are no more than window dressing your capital.

  1. “I bought this to diversify my portfolio”

If EUR/USD isn’t working for you add GBP/JPY. NO!

Concentrate on the trade you have in place. You entered it for a reason, it’s either right or wrong. The only excuse is that the trend hasn’t developed and there is time to look at another pair. Maybe but look at correlation otherwise you are simply adding risk to the original trade

  1. “Next time I will hit the high or the low”

A trade is right or it’s not. The entry level is your entry level. Some wise-guy may have sold 20 pips higher or bought twenty pips lower. That is his entry level. Don’t wait for the correction it will never come. Ask the guy who waited for bitcoin to go back to $10. Where is it now? $3000+ OMG

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