Trading Lesson: Pros Find A Reason Not To Buy It

Greed and lack of experience is a powerful combination and it often gets investors and traders into trouble. Humans are naturally dreamers, thinking about the ‘what ifs’. What if this stock or crypto goes parabolic. Generally, investors start spending the profits in their mind before they even buy the asset.

This gets them in trouble. Investors tend to overlook risks because they are eagerly thinking about the profits that ‘could be’ generated. In addition, overlooking risks and mentally calculating the gains makes an investor over-leverage themselves. This compounds the problems when a trade goes against them as emotion kicks in (fear).

Long-time pro investors and traders change their mindset. They analyze the asset not looking for reasons to buy it but reasons NOT to buy it.

While retail investors tend to look for any reason to fit their thesis (which can always be found), pro traders and investors look for any reasons to disprove their thesis. It is only when they do not find any, and they analyze the risk of the trade and it makes sense, do they invest money in it.

Even then, a seasoned pro trader and investor remembers past lessons and does not dream about the profits they may make and how they will spend it, but instead the mindset is, how do I react if/when this goes against me? What if I missed something in my analysis? This keeps position size in a reasonable range where if the investment goes against them, it does not blow up their account. In addition, it keeps emotion in check and logical decision making is taken.

Retail investors ultimately need to change their mindset. The mindset of ‘Find A Reason Not To Buy It’ is a powerful change that helps investors reach new milestones of success.