HOW A 10% LOSS TURNS INTO A 50% LOSS
cutting loses is the key and read everywhere in stock books. BUT can you follow through and do it?? again, trading is 50% mental...
many times, i can't blame my indicators.. my system.. i only have to blame myself -- my emotions, greed and fear...
only traning and experience can "train" your mind.
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by ross mceathron...
Cutting your losses quickly, no matter what percentage you decide on, is
extremely important not just from a preservation of capital view, but
also from a psychological one as well. It's much easier to lose 10%,
since that's what YOU decided on, than it is to lose 40% or more and try
to rationalize the stupidity of the marketplace (BTW, the market is
never wrong because it doesn't know any better). What happens to me is
that I've decided I'll let stock XYZ Inc have a 10% loss and no more.
When it gets to $10, I'll tell myself, one more day and it's outta
here. Maybe I get lucky and it bounces the next day before trading
slowly lower again. Maybe it goes down another 3% the next day and I
just want to get back to the 10% loss from yesterday. Then one day, I
realize that I'm down 25% and didn't sell the darn thing like I said I
would. Now I'm hoping that the stock will just go back up enough for me
to get out at a 15% loss and I swear I'll sell it. Now, it's down 40%
and I SWEAR I'll sell it if it will just get back up to that 25% loss I
had a few weeks ago and this of course can continue on and on and on.
At some point, the loss becomes so large that we become too emotionally
involved. We start to take it personally and at some point we just open
the window and throw out all the logic that went in to the trade in the
first place and start duking it out with the markets themselves. We
always lose though. We ARE our own worst critics. |
