Mar

16

Here is one valuable lesson that I gained from a pirate. Call it the Captain Hook principle if you like. It involves understanding how an alligator eats its prey.

I learned this from Vic Sperandeo's book Methods of a Wall Street Master. He mentions this on page fifteen.

"The more the victim struggles the more the alligator gets. Imagine an alligator has you by the leg: it clamps your leg in its mouth and waits while you struggle. If you put one of your arms in the vicinity of its mouth while fighting to get your leg free, it lunges and then has your arm and leg in its clutches. The more you struggle, the more the alligator takes you in.

So if an alligator ever gets you by the leg, remember that your only chance to survive is to sacrifice the leg and drag yourself away. Translated to market terms, the principle is when you know you are wrong, close your position!"

Aron Ralson describes in his book, "Between a Rock and a Hard Place," how he broke his radius and ulna bone in his right arm and then self-amputated his hand at the wrist after being pinned under a rock for 6 days in Utah's Canyonland's National Park.

This illustrates clearly what happens when you are in a bad trade. Be an adult. Don't rationalize. Don't pout, don't freeze, and don't call your mom. Admit you were wrong and sacrifice the hand to save the life. Most important, live to fight another day. Accept your humanity. Look rather at a bad trade as suspension of success.

Vince Lombardi said, "We never lost a game we just ran out of time." And in the timeless words of John Maynard Keynes, "The markets can remain irrational much longer than you can remain solvent."


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1 Comment so far

  1. william band on March 23, 2007 10:57 pm

    On your March 16 lesson….what an important lesson it is too…you need to stop losing money before you can make money..when the market tells you are wrong..listen to it! this alone can save your trading career.

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