Why Traders Hold Losers: The Twain Principle in Commodities

Mark Twain: "It's easier to fool people than to convince them that they have been fooled." The same dynamic plays out in commodity markets, several traders said. A pattern builds and a story forms. The crowd buys in. When the story breaks, the believers hold on. They wait for a reversal that does not come. The cost of being wrong twice, first on the trade and then on the ego, keeps traders from accepting the new reality. The market moves on. The fools stay.

In oil markets, a false breakout above $72 drew bullish bets last month. Prices reversed. Open interest stayed elevated for two weeks before liquidation began, exchange data showed. The delay cost late holders an extra 4%, traders said. The pattern repeats in gold and copper. The cure is to admit the mistake early. Most do not.