The inability to control one's emotions is the greatest enemy of the speculator.
Trading is a battle between reason and emotion, and it requires a rational plan.
I realized long ago that the stock market is never dull. It is designed to fool most people most of the time.
The two main emotions in the stock market, hope and fear—hope often arises from greed, while fear often arises from ignorance.
I believe that the inability to control one's emotions is the true enemy of the speculator. Fear and greed always exist; they lie within our hearts. They wait outside the market to jump in and perform, waiting for the opportunity to make a big profit.
Hope is crucial for human survival, but hope is akin to its stock market cousins—ignorance, greed, fear, and distorted reason. Hope obscures the facts, while the stock market only recognizes facts. The outcome is objective, final, and unchangeable, like nature itself.
The speculator's main enemy always arises from within. Human nature is inseparable from hope and fear. In speculation, if the market goes against you, you hope every day is the last day—and if you do not obey hope, you will lose more than you should—strong enough to be comparable to the great heroes of founding nations and expanding territories.
When the market moves in your favor, you fear that tomorrow will take all your profits away, so you exit—exiting too quickly. Fear prevents you from earning as much as you should.
Successful traders must overcome these two deep-rooted instincts. They must change what you could call the nature of impulse. When they hold onto hope, they should actually be afraid, and when they are afraid, they should hold onto hope. They must fear that their losses could become greater losses, hoping that their profits could become greater profits. Gambling on stocks like the average person is absolutely wrong.
Remember, if an investor lacks discipline, a clear strategy, and a simple, executable plan, they will fall into the trap of emotions. Because a speculator without a plan is like a general without a strategy, and therefore has no feasible battle plan.
— Livermore
