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How In The World Do You Keep Losses Light?
When the market is whipsawing people left and right, nobody is immune and with that in mind, we want to talk about the
importance of keeping losses light. But how in the world do you keep losses light? After all the years of playing this game called the market, managing loss has always been the biggest problem of the people we talk to. Suppose Mr. Trader has been defeating himself to a big extent. He can find a good trade, get a good entry, but when the stock falls, he can't seem to pull the plug. He has ridden stocks down for multiple thousands of dollars. Does this sound familiar? We encounter this all the time.
When you trade the market, either for a living or for increasing your retirement portfolio, you are engaged in one of the toughest one on one sports in the world. We are talking about money here folks and money has a way of attracting the brightest minds on earth. Those minds are in the market to make money and they make it by outdoing the next guy. It's you
against the market, this collection of smart people who are all out to take your dollars. Some call it combat and that is a decent analogy. For some it seems virtually impossible to beat these guys. But it doesn't have to be.
There is a catch to this game! See, it really is in your head.
The key as you have all been told for years is to let your winners run and cut your losses. Nothing could be simpler right? Wrong! It's the toughest exercise you will ever endure. Why? Human nature. We all like to be winners, it's genetic. So what happens is that when we buy something and it turns against us, we start making excuses for it. "It will come back", "They
make money", "It's a good stock" "Maybe tomorrow it will bounce". We hear it every day, you can simply plug in the words that you like to use! No one, and I mean no one wants to go to a dinner party and say "well I bought XYZ but I had to sell for a loss." Nope. It's much easier to hang on and "hope" it up. That way you can justify your position, "I am investing in XYZ because I think they have a bright future" That sounds much better than "I lost money". No one wants to be a loser. No one wants to admit to themselves they bought a dog stock.
But to win in this game you have to sell for a loss. NO ONE and I repeat NO ONE has ever made all good trades with no losers. Show me anyone who has been in this game for more than one or two trades and you are going to see they picked a pig somewhere. Maybe the breakout failed, maybe they warned, maybe the market stalled, maybe whatever, but the fact is we all buy garbage and what do you do with garbage? You dump it.
The only way to be a success in this game is to "do the dumping", you simply have to stick to the plan and sell when it goes against you. But here is the bright spot that no one seems to recognize. We are in a game of percentages. All you need to do is win a few more than you lose and you end up being a success.
No matter how tough it is to pull that trigger, if you simply do it, swallow your pride and move on, you will find that over the long haul you have amassed more winners than losers. It really is that simple. And yes it's the hardest thing you will ever do.
So the next time you buy XYZ and it starts falling for you, pull the sell trigger and lick you wounds, only you will know about it! The bottom line is that you have to prove out the numbers for yourself. Take one month. Stick to the plan. See the
ones that stop you out and let the winners win. Move your stops up in a trailing stops pattern. One month later you too will find that you made a profit. I know it will be tough, but trust me it won't be as tough as seeing the stock you "know will come back" trading down 5 points! Put it to the test, you will succeed!
About the Author: Larry is the owner of http://clik.to/stocks2watch , and is a recognized authority on the subject of trading and has been publishing his newsletter, Stocks2Watch®, since January of 1997. A free trial is available at: