How To Know When To Quit (Part 1/2)

10 Nov 2022

Hello traders,

All the below are based on my preferences, I don't give any financial recommendations and I have nothing to sell you with this article.
I'm sharing content because I see a lot of traders being/becoming broke and I don't want you to be one of them.

Splitting this article in 2 parts because it’s dense and I don’t want to lose people who might think “too much text I won’t read”

Let’s talk about:

– Cognitive biases
– Decision-making

1. Be at ease with a bad outcome

Focus on the decision-making process instead.
Think in probability and play to the best of your hand.
Don’t dwell on a bad outcome if the process and decision-making were sound.

You have no control over outcomes when luck is involved.

Embrace uncertainty.

Understand that you have to get down to what do I have control over, and what don’t I have control over.


And I have to accept the tremendous influence of luck, I have to accept the fact that I’m having to make these very high-stakes decisions without being able to accurately predict where the candles are going.

2. Advice from Eric Seidel: Do not dwell on unlucky events

Eric Seidel is a 9-time world series of poker bracelet winner who made $40 million.
By all means, discuss what could have been done better.
If you played to the best of your "cards", that’s all that matters.

He goes, “I don’t want to hear about it if there’s not a question. I don’t care that you got unlucky.
I get unlucky too.
And I have to deal with losing with two jacks against two nines all the time also.
I certainly don’t want to take on your emotional trash about it myself.
And what’s the point of talking about it? You made a great call and lost, who cares?
Would you have changed anything about what you did? Do you think you got the read wrong?
It sounds to me like you did everything right. So why are we even talking about this?
I mean this is the thing, if it really was just bad luck, who cares?
This is about embracing that uncertainty, right?”

3. All decisions are probabilistic

And we make these probabilistic decisions all the time.

Consciously or subconsciously.

Whether its choosing your partner or the route you are taking to work.

You’re making a forecast.

The moment we make it explicit, we start to create feedback loops we can learn from.

Even if you don’t think you’re doing it explicitly, literally every single decision you make is probabilistic, because it’s a forecast.

It’s a forecast made under conditions where you don’t have all the facts.

You generally know very little in comparison to all there is to be known.

We have to reject the idea that if you’re not doing it explicitly, that you aren’t thinking probabilistically because every decision is a probabilistic decision just by its nature because the world is probabilistic, that is how we decide.

Now the act of trying to make these things explicit will make you better at it, because what it will start to do is allow you to create good feedback loops.

4. Don’t trade if you don’t have an edge

And we are very good at fooling ourselves into believing that we have an edge.
Set up structures, write down your thesis.

What new information will break your thesis?

When should you quit?

I think we’re very good at fooling ourselves into believing that we have a rational reason, that we have an edge.

And I think that that’s particularly so when we’re in a situation where the thesis would affirm other things that we already believe about the world.

I think it’s particularly so when we’re already in the investment/trade.

So one of the things that we need to do is set up structures around us that will allow us, first of all, to be better at those, are we really being rational and starting… but more importantly, because the starting decision is always uncertain, is to say, as we discover new information after we’ve started, are we stopping, right?

Are we figuring out when we should stop?

Because it turns out that we’re very, very dense when it comes to actually paying attention to the signals after we’ve started something that we ought to stop it.

And that’s where we get particularly irrational.

Quotes of the day

“Pain is temporary. Quitting lasts forever.” ― Lance Armstrong

“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance“ ― Ed Seykota

"Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade." ― Yvan Byeajee

I'll post the second part tomorrow

I'll keep bringing a few articles like this every week because it helps me clarifying my thoughts AND giving back to the community makes me feel good about myself somehow :)

Thank you for reading
Dave