I was having a conversation in the completely FREE and totally RAD Outlier discord (you can join in the fun here!) regarding the current markets and some recent trades. One of their recent trades was scaling into some long-term bullish positions that they felt were quality at great prices.
For long-term investors or just long-term positions, this can be a completely viable approach. For trading however, it typically involves committing capital to an unrealized loss, holding something while it’s under water. Worse, sometimes valuations can break down, and what we thought was a great company at a bargain, was actually a struggling company that was assuming market value.
So if we choose to willingly throw good money after bad, add to losing positions that we think may turn around or be great long-term investments, it’s absolutely imperative we do our homework.
The tricky part with this homework, is our mind and ego is in the background pulling all sorts of strings, we don’t like to be wrong, we don’t like to lose money. Something I’ve found to be useful is creating a scaling checklist, which is made before trade entry (to limit emotional input). The purpose is to have an objective way to assess a trade and scaling potential.
A good starting point is to look at your entry criteria and see if your original analysis holds true or what areas have changed. Would you take that same trade now?
Don‘t underestimate the craftsmanship of our minds, they’re stunningly cunning and often deceive us into thinking we’re cognitively making our own choices when really much of what we do is being directed by our comfort seeking subconscious. Resist.
Be an Outlier!