InvestorQ : Can being wrong in the market be better than being right?
Anjana Aiyar made post

Can being wrong in the market be better than being right?

Arusha Ray answered.
3 years ago

Not always, but at times yes, you are right. It does turn out to be worse when you are right than when you are wrong. Take the case of two traders in the market. Trader-A was of the view that markets could crack and therefore he bought put options. When markets moved against him, he booked small losses on the puts and closed his position. Trader-B, on the other hand, perfectly predicted a 10% rise in the market, which was achieved over the next 3 days. Had he acted on this view, he would have surely made a killing. Sadly, he did not take any position and missed acting on the rally. The point is that there is really no difference between the two traders. One got his call wrong and lost a bit of money, while the other got his call right and yet did not money because he could not put his money where his mouth was. Being right hardly matters, if you cannot leverage on it. More than being wrong and right, what matters in the stock market is what you do when you are right and what you do when you wrong. That is all the more critical from a trading and investment perspective.