After losing 5 million, I understand that trading is inhumane Trading is actually an inhumane process. That is to say, most of the top traders have mastered the various manifestations of human nature in trading. Understanding how human nature is manifested and reversing these human traits is the foundation of successful trading for traders. Therefore, good traders actually have no secrets, they just discover the weakness of human nature in trading and actively reverse them. In the book 'Turtle Trading Rules', some cognitive biases that have a significant impact on most people's trading are listed. So, how do these cognitive biases affect our transactions? 1. Disgusting losses and unwilling to stop losses I would rather not make a profit than lose out. This is the psychological state of many people. Futures are fine because of leverage and large fluctuations, making it easier for people to recognize the necessity of stop loss. But in the stock/coin market, there are a very large number of people who are unwilling to cut losses, because the saying 'the stock/coin market always rises in a bull market' gives them the best reason. And professional traders stop losses directly and decisively, as simple as drinking water and eating. 2. Sunken costs Due to their aversion to losses, people have developed an attitude towards "sunk costs". Sunken costs refer to costs that have already occurred and cannot be recovered. Economist Xue Zhaofeng once pointed out that sunk costs are not costs. But most people don't think so, they find it difficult to accept these facts. For example, in "The Turtle Trading Rules," there was an example where a company invested $100 million to develop a project. After the successful development of this project, they discovered a significantly better technology. According to normal rational logic, this company should abandon its previous project and instead develop this new project, focusing on the future without worrying about the costs already incurred. However, this transformation will make the company feel that its $100 million cost has been wasted. They may continue to stick to the initial project... This is the bad decision brought about by sunk costs, affected by costs that have already occurred and cannot be recovered. In trading, this phenomenon is also visible in the market. For example, many people often carry a stock with them, not only because of their aversion to losses, but also because they may be thinking that if they liquidate this stock, their previous losses will be wasted. So he stubbornly held on to trying to recoup his costs, ignoring other stocks with better trends. This is the same as the company mentioned above. Abandoning other better opportunities due to previous costs. This behavior pattern will be strengthened as losses increase, as the greater the sunk costs, the more difficult it is for people to give up. That's why we often hear about people holding stocks for decades. The fundamental reason why people can turn off their computers and uninstall software is that since I have already lost so much, if I cut losses, wouldn't all this money be in vain? But in reality? In fact, how the market goes in the later stage has nothing to do with how much sunk cost he has paid. Therefore, for traders, it is important to take a stop loss, take a break, and not overly focus on sunk costs. 3. Disgusting uncertainty The Turtle Trading Law has made people more willing to settle for safety a disposal effect. But I think it is caused by an aversion to loss and an aversion to uncertainty. When our account has a floating profit, we will face both the uncertainty of profits and the possibility of losing profits. This has made it difficult for us to tolerate continuing to hold positions. We urgently want to finalize the matter of profitability. So, once there is a floating profit, especially when it starts to fluctuate, it is the time when people most want to close their positions. However, in reality, trading requires embracing uncertainty and trying to capture the big trend market when there is a floating profit. Only in this way can we have the opportunity to increase the profit and loss ratio and achieve the expected positive returns of the overall trading logic. The idea of stopping when it's good is simply not enough to hold onto the trend market. 4. Result preference We prefer to believe in the outcome rather than the process. Many people only consider whether their trades are profitable, believing that profitable trades are the right ones and losing trades are the wrong ones. Completely indifferent to the transaction logic behind it. In fact, professional traders are more concerned with trading logic. If the logic is correct, it is also right for a single trade to result in a loss. The logic is incorrect, and the profitable orders are also wrong. For example, carrying it to death. Many people have really come back after enduring death. Under the cognitive bias of outcome preference, they will believe that this is correct, and then one day they will be taken away by an irresistible market trend. Many people have achieved short-term profits due to luck, which has strengthened their behavior patterns and ultimately led to their failure. People have always enjoyed the outcome, especially in the uncertain field of futures markets. Therefore, in the trading world, bragging has always had a market. Because those who make money are powerful, and whoever makes money is a master, this is the way most people think. It's better to look at logic than at results, because in this uncertain and leveraged field, results are highly contingent, while logic has true stability. 5. Recent preferences Pay more attention to recent data or experience. This is easy to understand. Many people use a certain trading method, and as soon as they lose money recently, they will immediately say: the market has changed or the method has failed. For example, the Turtle Trading Law itself, many people have tried this trading model, but as soon as this method starts to lose money continuously, they will say that too many people know about this method and it has long been ineffective. However, in reality, only a few people are truly able to use this method, and a very small portion do so because they truly understand it, while the majority do so because they do not understand the trading logic involved and follow their recent preferences. As soon as there is a loss, it begins to change, and a large part of this is due to people's recent preferences. Little do they know, no trading method can achieve continuous profitability, and any trading method has its own unfavorable period. The correct way is to look at the problem from a logical perspective in the long run. Whoever makes money recently is powerful, whoever is a god. In the past few years, the profits were stable, but the old masters who have suffered losses recently are no longer capable. This is the thinking mode of the layman. Celebrities are common, while longevity stars are rare, but many people do not think so. 6. Trend effect and herd effect It's relatively simple, people tend to follow the crowd and believe in something just because others believe in it. For example, most people believe that the Turtle Trading Law has long been invalidated. Why? Because they have verified it? No, because everyone says so. Insight is important in trading as it can help traders avoid the two situations mentioned above. 7. Anchoring effect Psychological term refers to the tendency of people to be dominated by first impressions or first information when making judgments about someone or something, like an anchor sinking to the bottom of the sea, fixing their thoughts in a certain place. This typical example is appearance. Why do many people remain indifferent when the trend is declining and their accounts are losing money, while when the market rebounds to near costs, people are more willing to react and flee? In addition to factors such as aversion to loss and uncertainty, another reason is the anchoring effect. We often hear stories in the cryptocurrency market where someone made tens of millions with 50000 yuan and eventually returned to 30000 yuan. Why didn't she put her bag in safety when she withdrew to a certain extent? I believe there are two factors. Firstly, the reason why she was able to achieve exaggerated profits was because she was able to withstand the pullback. The second point is that during the drawdown process, she thought to herself, since I have achieved such high returns before, if I close my position now, wouldn't it be a waste of the profits that belong to me? She used her previous high-yield position as an anchor point. Account equity has been declining, anchored, and unwilling all the way, Finally, how to get up and how to get back. This problem is very common in trading, and the solution is also very simple. Set a reasonable exit, tolerate a certain degree of drawdown, and understand that drawdown is the inevitable cost of trend trading. How to obtain the correct direction in the trend without assuming a pullback? The above phenomena are typical manifestations of human nature. Good traders don't have any magical secrets, they just perceive these phenomena, reverse them, and do things that most people don't want or can't do at all.