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2024/06

Self-check: What’s disrupting your investment logic?

Investing is inherently challenging, with many interferences and uncertainties. Internal and external factors can easily affect investment logic, and investors must address these disruptions.

Here are some of the disruptions in your investment logic that you must check to become a successful investor.

External Interference

The impact on investment logic generally starts from external factors. External influences can significantly affect investments.

For instance, excessive information can be a significant disruptor. The more information an investor receives, the greater the likelihood of being influenced. Excessive information can subtly alter an investor’s original logic.

For example, you may be particularly bullish on USD/JPY and plan a long-term investment in this pair. However, if there’s news about a potential scandal involving the US government, you might spend more time verifying the news and then re-evaluate your initial analysis.

Regardless of the truth, this information gets embedded in your thought process, making you anxious about any minor market movement. Without this news, you might rely solely on your analysis, avoiding disruptions.

While it’s ultimately challenging to avoid such disruptions in an information-rich society, you can limit your exposure.

Excessive information is just one example of external interference; there are many others that investors need to identify and manage.

Human Weaknesses

After addressing external factors, the next step is to solidify your logic. Humans are thinking beings, and even without excessive external information, they can have various thoughts about the same situation, leading to indecisiveness in investments.

The correct approach is to confirm the correctness of your investment logic through thorough analysis. Once the logic is established, don’t keep going.

For example, suppose you analyze and decide to go long on a particular asset, but the asset experiences a significant pullback after a rally. There might be various reasons for that. This could make you anxious.

Instead of overanalyzing the current situation, focus on whether the initial logic for entering the trade still holds. If it does, continue to have the position until the logic is fulfilled.

By resolving both external and internal issues, sticking to your investment logic becomes easier. A successful investor’s logic often differs from the majority, requiring unwavering commitment to their logic.

Adhering to the Right Logic

Successful investing involves eliminating external disruptions, adhering to the correct logic, and addressing factors that might hinder the regular operation of the trading system from the outside.

Every investor knows that successful investing comes from recognizing and sticking to a trading system. Yet, many need help to align their actions with this understanding due to various external and internal influences. Investors must identify and overcome the factors affecting their investment logic.

Practical Tips

  1. Limit Information Overload: Curate your information sources to avoid being swayed by every market rumor or news.
  2. Thorough Analysis: Conduct in-depth analyses to ensure external or internal factors are not clouding your judgment.
  3. Checklists: Use a checklist to identify potential disruptions. Before making any investment decision, review the list to ensure that external or internal factors are not clouding your judgment.
  4. Stay Objective: Focus on the validity of your logic rather than the immediate market reactions. Ensure that your decision-making process is logical and data-driven.

By systematically addressing these disruptions and maintaining a disciplined approach, investors can improve their chances of adhering to their investment logic and achieving success.

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