The Alligator Principle is based on the way an alligator eats: the more the victim tries to struggle, the more the alligator gets. Imagine an alligator has you by the leg; it clamps your leg in its mouth and waits while you struggle. If you put one of your arms in the vicinity of its mouth while fighting to get your leg free, it lunges and then has your arm and leg in its clutches. The more you struggle, the more the alligator takes you in.
So if an alligator ever gets you by the leg, remember that your only chance is to sacrifice the leg and drag yourself away. Translated to market terms, the principle is when you know you are wrong, close your position! Don’t rationalize, hope, pray, or anything else, just get out. Don’t change your position, hedge it, or anything else; just take the loss and get out!
– Victor Sperandeo
