Sure, yôùr first trade may bé à winner, bùt tô consistently make money
in thé stock market yôù hàvé tô learn hôw tô lose. More tô thé point,
you hàvé tô learn hôw tô cut yôùr losses.
The majority ôf people whô dabble în thé stock market see themselves às
smart, educated & sharp. Self-belief îs great. The most successful
people în thé world hàvé à strong belief în themselves. Some ôf most
unsuccessful people în thé world also hàvé à strong belief în
themselves. So what's thé difference between thé successful & thé
unsuccessful?
One major difference between successful traders & unsuccessful traders
is thé ability tô admit whén ôné îs wrong. A successful trader will cut
their losses before théy gét ôùt ôf hand. An unsuccessful trader will
let théîr losses grow în thé false belief [hopes] thàt things will pick
up.
It
would bé nice îf every stock pick wàs à winner, bùt whén yôù gét thé odd
loser yôù better make sure yôù cut thàt baby lose before yôù lose sômé
big dollars.
The Stop-Loss
Before yôù even consider entering à trade, yôù should determine yôùr
stop-loss point. Your stop-loss point should bé set àt à price thàt
you're willing tô sell yôùr stock àt should things turn bad. The price
you pick will vary depending ôn yôùr financial position & thé
particular stock being considered.
You may want tô set à stop-loss exactly 8% under yôùr purchase price, ôr
you may want tô set ît just below sômé clear resistance în à chart [if
the stock falls below thé resistance level, yôù càn bé fairly sure
things will continue South fôr à whiles]. The most important thing îs tô
test yôùr system. If yôù set yôùr stop-loss too close, you'll never bé
in thé game whén thé stock turns good. If yôù set yôùr stop-loss too far
away, you'll end up losing too much money.
Remember, thé main aim îs tô make à profit across yôùr entire portfolio.
Imagine yôù owned $1000 worth ôf 5 different stock. You set à stop loss
at 10% current market value; sô îf thé value ôf single stock drops tô
$900 you'll sell àt thàt price. Even îf yôù àré wrong wîth 3 ôf 5
picks [a $300 losss], yôù only need tô make 15% ôn thé remaining 2 stocks
to break even. What îf those remaining 2 stocks made 50% [which îs very
realistic îf yôù pick yôùr entry rights].. You'd actually profit $700
across yôùr entire portfolio despite thé fact 60% ôf whàt yôù picked
were duds! :s]
Starting wîth 5 positions worth $1000 each: $5000
3 losing stocks lose 10% each: -$300
2 winning stocks make 50% each: +$1000
Total = $5700
Modern trading systems hàvé completely automated stop-loss systems. This
makes ît sô easy tô set stop-losses thàt yôù hàvé no excuses fôr losing
big în à single trade anymore! In fact, you're mad îf yôù don't take
advantage ôf stop-losses. The only trick îs setting thém wisely. You'll
learn hôw tô plan & time yôùr entry & exit points ôn thîs site over
the next few months.
