[Summary]
The psychology of not being able to cut losses is the psychology of delaying judgment in order to avoid determining losses.
The advantage of the psychology of not being able to cut your losses is not that it guarantees profits, but that it makes it easier to organize the materials you need to look at.
In actual investing, the starting point is to determine the withdrawal conditions before buying. However, you need to be careful that the desire to return can easily become strong.
In this article, we will explain the psychology of not being able to cut losses, not as "knowledge", but as steps to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, divide based on the psychology of not being able to cut losses.
When looking at the psychology of not being able to cut losses, first determine what you want to judge. The information you need will change depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. The psychology of not being able to cut losses is not the only factor in determining a decision. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Don't overestimate the merits of the psychology of not being able to cut your losses.
If you look at the psychology of not being able to cut losses as an advantage, first of all, make a narrow premise. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
Checking the following points will make things a lot easier.
| Axis to check | Look at it with a mentality that prevents you from cutting your losses. |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
It's not only when you don't have enough knowledge that you get stuck because you can't cut your losses. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Decide first what you will be able to see with the mentality that you cannot cut your losses.
- Differentiate between conditions that bring about benefits and conditions that do not.
- When expectations are too high, test with a small amount
- Write down the terms of withdrawal before considering profits.
The important thing here is not to settle on one correct answer based solely on the psychology of not being able to cut your losses. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using the psychology of not being able to cut losses as a basis for making an actual decision, check at least these five things.
- Can you explain in one sentence the purpose of looking at the psychology of not being able to cut losses?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of checking the psychology of not being able to cut losses is not to act faster, but to reduce unnecessary judgment errors.
Summary
The psychology of not being able to cut losses is a material for organizing investment decisions. Even if you read it as an advantage, treating it as a stand-alone buy/sell signal will make your judgment difficult.
The points to keep in mind are as follows.
- Determine the purpose first to determine the psychology of not being able to cut losses
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. The psychology of not being able to cut your losses is not a word that forces you to make a hasty decision, but it is realistic to treat it as a tool to pause before buying or selling.