To win or lose a trade is a familiar thing. We have experienced bot the joys and pains of it.
With trading losses, the majority of the time the shortfall comes from the trader and no the trading strategy.
Yes, that probably means you. But, today I’m going to talk about how to stop losing money and become a winning trader. Before you even place an order, deciding where to buy or sell is always connected to where you place your stop-loss order.
No discussion of position entry is complete without a thorough explanation of stops. But I’m left to wonder why so few investors use stop-losses. If you’re guilty of not using stops, you need this information. It might just mean the difference between retiring on time with a healthy nest egg or retiring later and still just “scraping by.”
By planning and placing stops you plan to win, but prepare to take losses and still live to trade another day. So we need to look at the trader psychology around taking losses.
Every pro trader has to have a point in their minds denoting when they will get out, before they will get in. This has to be known before hand so that when the moment comes they can get out quick. This is a down-home basic knowledge the each pro-trader has to have.
Can you answer the following questions?
1.) How do you know if you should sit tight or cut your losses?
2.) Is there a set point that indicated to you to sell losing stocks?
3.) When do you move your stop so that you break-even?
Are you unable to answer these questions? You aren’t alone. This indicated that you should be establishing some rules, especially when going to short stocks, but trading rules don’t mean a thing if they aren’t used. This is why we need to have a frank discussion about why you aren’t managing your risks in a hands on way, like a pro should.
There are 2 base reasons why Investors won’t take a loss:
1. Inability to admit they are wrong.
For many traders a realized loss is a huge admittance of being wrong and that is just too hurtful to acknowledge. To them it is linked to being a failure at life and their self image is directly affected by this perceived failure.
The loss is personalized and pulls on their emotions. It is easier to deny the loss than own up to the pain of the loss. He will either lose everything before he will seek to change or he will quit trading.
2. The losing position is too big relative to their overall portfolio value so they can’t afford take the loss.
The loss is a real loss, it is not solely on paper, the stock/bond option has the value of the quote, even if you don’t see it.
Both of these examples are a form of self-delusion that millions of investors, both large and small, suffer from. Just look at AIG, Merrill Lynch, WAMU, Lehman, etc. … and you can take comfort in the fact that self-delusion is no respecter of income bracket or social standing.
Are you feeling uncomfortable with what I am saying?… or powerless, or angry? Good! That is a sign that you are capable of making the changes you need to.
A winning trader will have a different view of losses than a losing trader. He doesn’t take it personally. He takes it as a sign that he needs to revamp his approach or execution no that it is a sign that he as a person is lacking.
Winning traders separate who they are from what they do. They know, or learn, that their trading faults lies in their approach or their skill level but not in their fundamental worth as a person. The pain they feel is quickly transmuted into motivation, which fuels their desire and determination to become a better trader.
You choose what to do with the losses, grow from the pain or give in and quit. Using the emotions for positive growth is what is important, not the fact that you had a loss.
Utilize faithfully my verified ETF Trend Trading System and develop winning habits. Practice the principles, keep an eye on your position size relative to your portfolio and the product will be an overall growth in your portfolio.
My constant reminders about proper stops and risks are one of the strongest parts of my one year mentorship program. Even after you understand my system 100%, it’s still good to hear me tell you, “Don’t move your stop” or “Be sure to take profits when the system says to, not too early and not too late.” Most my students like the mentorship part as much or even more than the course itself.
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