Zero is Bottom

The markets have a clearly defined Zero-value. This has several important implications. First, traders often discount the possibility of something becoming absolutely worthless (i.e. going to zero), so the more the price goes down, the greater the traders’ tendency is to believe that it has a higher probability of going up again; therefore the temptation to catch the bottom and go long becomes compelling (despite its irrationality). Traders must realize that how they are hardwired to think as people is not necessarily the way they should think as a trader. There is a reason why 90% of people who attempt to make a living as a trader end up failing and it is not because of intelligence, information, technology or effort. In a nutshell, I believe failure in trading is because of a lack of self-awareness. The solution is to compartmentalize your thinking. When you are interacting in society or at home, let yourself think like a person; but when you sit down to trade, you need to think objectively by evaluating risk/reward as a trader should.

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