Not Acting Until Crisis
Why is it that a trader will compound a losing position with massive trades, but only after he has nearly exhausted his financial resources, will he actually admit that he should have simply dumped the trade when it was not working out early on? Why does a Wall Street investment firm turn a blind eye to risk problems, and only face up to the true nature of the problem when they have to write off zillions of dollars in bad credit/mortgage/SIV investments?
Humans want to give their genius ideas a chance to succeed. We naturally want to believe that if we let it go a bit longer, that things can turn around. We also naturally believe that if we cut off everything the moment something goes wrong, that we're quitters. Giving up fast is not something that gains us a lot of respect, but it's exactly what can make a so-so trader into a great one: the ability to give up when it's necessary. And give up fast.
