The only variable you control after you bought a position is when to get out.
You don’t control how much it goes up, when it goes up, and if it goes up. The only thing you control how much you are willing to lose.
Now sometimes when there is bad news or earnings reports, it gaps down. This will happen from time to time. There’s nothing you can do about that. If you’re sitting in profits that’s manageable. But if you’re in sitting losses you want to get out as soon as possible.
And yes, sometimes it gaps down, takes your stops, and reverses higher. That’s part of the game. However, you don’t want to be in a situation where it gaps down, you wait until it recovers before getting out, but it keeps falling.
Every big loss starts as a small loss.
But the bigger the loss, the harder it is to recover. A 10% loss needs an 11% gain to break even, but a 50% loss requires a 100% gain. That's why protecting your downside is so important.
The reason why cutting losses is hard is because there’s a chance it might recover. There’s hope that we don’t look stupid. Hope that we were right after all. Taking losses hurts. Studies have shown that people need 2x the gain to offset a loss. In other words losses hurt two times more. So, as long as the position is open there’s a chance that it might recover. But as soon as it’s closed the loss and hence the mistake becomes permanent.
That’s why realizing that losses are part of the game is so important. Nobody will be right all the time. It’s just about making more than you lose.
The sooner you cut the losses the better. Because sitting on a loss means you’re timing or your selection was off or the market is not favorable at the moment. When you hold a loss you’re also facing opportunity costs. The money often is better invested in superior opportunities.
The only variable you control after you bought a position is when to get out.
You don’t control how much it goes up, when it goes up, and if it goes up. The only thing you control how much you are willing to lose.
Now sometimes when there is bad news or earnings reports, it gaps down. This will happen from time to time. There’s nothing you can do about that. If you’re sitting in profits that’s manageable. But if you’re in sitting losses you want to get out as soon as possible.
And yes, sometimes it gaps down, takes your stops, and reverses higher. That’s part of the game. However, you don’t want to be in a situation where it gaps down, you wait until it recovers before getting out, but it keeps falling.
Every big loss starts as a small loss.
But the bigger the loss, the harder it is to recover. A 10% loss needs an 11% gain to break even, but a 50% loss requires a 100% gain. That's why protecting your downside is so important.
The reason why cutting losses is hard is because there’s a chance it might recover. There’s hope that we don’t look stupid. Hope that we were right after all. Taking losses hurts. Studies have shown that people need 2x the gain to offset a loss. In other words losses hurt two times more. So, as long as the position is open there’s a chance that it might recover. But as soon as it’s closed the loss and hence the mistake becomes permanent.
That’s why realizing that losses are part of the game is so important. Nobody will be right all the time. It’s just about making more than you lose.
The sooner you cut the losses the better. Because sitting on a loss means you’re timing or your selection was off or the market is not favorable at the moment. When you hold a loss you’re also facing opportunity costs. The money often is better invested in superior opportunities.
The only variable you control after you bought a position is when to get out.
You don’t control how much it goes up, when it goes up, and if it goes up. The only thing you control how much you are willing to lose.
Now sometimes when there is bad news or earnings reports, it gaps down. This will happen from time to time. There’s nothing you can do about that. If you’re sitting in profits that’s manageable. But if you’re in sitting losses you want to get out as soon as possible.
And yes, sometimes it gaps down, takes your stops, and reverses higher. That’s part of the game. However, you don’t want to be in a situation where it gaps down, you wait until it recovers before getting out, but it keeps falling.
Every big loss starts as a small loss.
But the bigger the loss, the harder it is to recover. A 10% loss needs an 11% gain to break even, but a 50% loss requires a 100% gain. That's why protecting your downside is so important.
The reason why cutting losses is hard is because there’s a chance it might recover. There’s hope that we don’t look stupid. Hope that we were right after all. Taking losses hurts. Studies have shown that people need 2x the gain to offset a loss. In other words losses hurt two times more. So, as long as the position is open there’s a chance that it might recover. But as soon as it’s closed the loss and hence the mistake becomes permanent.
That’s why realizing that losses are part of the game is so important. Nobody will be right all the time. It’s just about making more than you lose.
The sooner you cut the losses the better. Because sitting on a loss means you’re timing or your selection was off or the market is not favorable at the moment. When you hold a loss you’re also facing opportunity costs. The money often is better invested in superior opportunities.
