The portfolio is only 15% invested at this time. A lot of stocks have been stopped out and what is important here, is that most of the trades kept showing additional losses after the stops were hit. In other words, the losses would be much greater at this point if I were to hold on and hope that the stocks would come back.
Too often people worry about what a stock will do if they stop out and the stock immediately turns around and heads higher. Whether one wants to hear this or not, it's a novice play to think that way. If you want to perform like a professional you must act like a professional.
In sales we used to always say, to be successful, act successful. People like to buy from those they perceive as successful.
It's no different in trading. To be successful, you must act successful and successful traders manage risk. The novice will focus on the reward. The professional will focus on the risk.
Think about it. If your stock is moving up, and you are long, how much effort is required to let it run? On the other hand, when a stock turns against you, it takes a lot of emotional effort to let go.
Professional traders say they can judge your success by merely looking at the way you manage your losses. They don't need to see your winners.
Stops don't have to be placed physically, they can be mental. However, you must have the mental discipline to follow through when that time comes.
You can always get back in!
ABLE is a good example of that. ABLE hit my pre-determined stop. I didn't feel good about it. I thought my analysis was correct but the market didn't agree with the timing. I took a 5% loss.
What wasn't known at the time was if ABLE would become a 10% loss, a 15% loss, a 20% loss or more. As it turned out, ABLE turned around and headed higher. I got back in and made 10% on that trade which gave me a decent short term profit when you combine the two trades.
The point is, if you want to show consistent profits, you've got to keep losses small. In order to do this, you must have the discipline to trigger your stops when they should be triggered. You are the one that determines where that point is. They can be tight or they can be loose. The key is that the line in the sand was drawn at a time when logic told you what was acceptable. If you let emotion take over in the heat of the battle, you will lose more of those situations than you win.
In sales, when a sale was made the wrong way, it reinforced a bad habit, a habit that over time would not produce consistent results. People had to learn the hard way. To most, a sale was a sale regardless of how it was made. They got away with it for a while and then the sales dried up, their income suffered. I'd go in the field with them to see what was wrong and sure enough, they got so far away from the basics, the fundamentals of selling, that they couldn't give a product away.
That's how it is in investing. Avoid a fundamental rule of investing and still make a profit, and before you know it, your results will suffer.
Many, many people can tell you of a story where a trade went against them and they doubled down. They put more money at risk on a trade that wasn't working. It worked once or twice and then they think it's a viable way to trade. Try setting up a trading system based on that strategy and see where it gets you. Most people will remember the time it worked. They forget about the pain from the times it didn't.
It's incredibly frustrating to see stock after stock be taken out with a stop. But it's also important to recognize that the small losses keeps one in the game. If you are trading properly, no one trade will make or break your portfolio.
To be successful, we must act successful, and successful traders manage risk.
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