What is cognitive bias that causes investment failure? Part 2

What is the second cognitive bias following part 1 I wrote on 5/9”Prospect theoryIt's”.

This is also famous, isn't it?
「People far outweigh the feeling of discomfort when they suffer a loss than satisfaction when they make a profit」
It's something like that.

That's exactly the case for me, and I think almost everyone reading this is also the case.
This kind of state of mind in Japanese”loss avoidanceIt's called”.

And this “loss avoidance” is”Big loss small profitIt's going to invite”, isn't it?

I don't want to lose money, so I'm in a hurry to make a profit. It went long and the stock price went up, but if they came and went down, they didn't like it, so they quickly made a profit. And if it moves in reverse, they don't want to lose money, so they hesitate to cut losses and hold it until they return to the purchase price. As a result, it falls further and falls into big losses or salting.

My head hurts too, and I think everyone does too. (lol)

If you have a cautious personality and are too loss-avoidant, this will result in “big losses or small profits.” Or rather, it comes up here too, but “I hesitate to cut my losses because I don't want to lose money” is actuallyLosses have not been avoided at allEveryone knows that, right?
Whether it's an unrealized loss or a confirmed loss, a loss is a loss. They are investors who can't win when they think it might be helpful if they don't confirm it...

These traits and personalities can also be explained with prospect theory.
The fear and discomfort of loss is so strong that I fall into the wrong feeling that “if profit and loss are not determined, it is not a loss” and “if loss is not determined, it may be saved someday.”

Moreover, I wrote it in part 1”anchoring effectWhen” is activated in double mode,Wouldn't they even return the purchase price I bought?Partly because of that thought, I don't want to lose money anyway, and I want to run away due to built prices, so I can't cut losses.

Well, it's not profitable to write human loss avoidance in a wry way, soHow to make use of it for investmentLet's think about it.

As I wrote last time”It is important to avoid the mistakes of our ancestors one by oneIn terms of”, if you know this prospect theory and the anchoring effect,You can objectively take a bird's-eye view of your own psychological state and investment behavior。

In the first place, people think on the basis that they don't want to lose money, so that's enoughOnce you have a position, set a loss cut (loss cut) at that point。
And even if it's promised and hunted,I didn't fall into the trap of prospect theory and anchoring! I can get it back at the next chance, so let's switch our mindsYou can change your mind with...

I'll do it even if I can't do it (laughs)

This is actually very important.
This obvious thingI can't do it when I have a positionThat's it. So many private investors lose.

What if this feeling of “I don't want to lose money”Always be aware, even if you make investment rulesI have to do it.
Even if I make rules like system trade, I don't want to lose as much as possible, soI change the logic so that I'm forced to work on a signature I haven't worked onIt's also due to prospect theory.

Negative emotions when removed win over emotions when things are going well, and signs and rules are changed so as to somehow turn when missed into success in order to increase the winning rate. I used to do well too. However, due to that change, signatures that were originally successful stopped working, and eventually lost over a long period of time... this is also a trap that people tend to fall into due to systres.

If you can also be aware of the prospect theory,Focus on the balance between win rate and profit marginThen,You can avoid the mistake of devoting yourself to increasing your win rateIt looks like this. This alone should stabilize and improve the stats of systres quite a bit.

In this way, prospect theory, which is a very commonplace story,If you be aware again and take it in the direction of “avoiding mistakes”It is possible to avoid one action that fails and causes losses.

Unbeknownst to us, we don't want to lose, and we take positions thinking we can definitely win.
If so, first things firstFind a tactic that balances win rate and profit margin, and mechanically cut losses or determine profits according to those rules。
Aware of both prospect theory and anchoring effects and eliminate themI'll do it.

If you know this and then practice investment behavior, you can avoid at least one major mistake.

What I'm introducing as Operation 00 is alsoBalance between win rate and profit marginI'm aware of it.
Maintaining a 70% 80% win rate is extremely difficult, so we are constructing tactics that produce results with a win rate of 50 to 60 percent. Paradoxically, I miss it all the time, so it comes with the bonus of “I think I can win every time so I can't go in” lol

But if you look at it over the long term, there is a huge difference in my investment results between my 20s and 30s now.
Aware of both prospect theory and anchoring effects and eliminate themLet's do it!