“Normal human tendencies are traits that cause you to do poorly. Therefore, to be successful as a trader you need to condition abnormal responses. You hear many traders say that you have to do the opposite of your gut response — when you feel good about a position you should sell, and when you feel terrible about it, you should buy more. In the beginning that’s true, but as you condition yourself for abnormal responses, somewhere along the line you become skilled. Then your gut becomes right.”
- Mark Minervini, Stock Market Wizards
The psychology of the herd is driven by common behavioral response. The ‘gut reaction’ of novice traders and investors is predictable because human emotion follows a basic template.
‘Conditioning abnormal responsea’ means building up enough experience to understand where crowd behavior goes wrong. There are (at least) three reasons the majority of traders and investors don’t do this:
- it takes observation and effort (and self-criticism)
- it requires abandoning the safety of the herd
- it requires patience and unconventional thinking
What steps have you taken to train your intuition, i.e. condition abnormal responses?
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