Stock Losses - Your Goal
Should Be Survival
One fact every trader should
accept is that stock losses are inevitable. If you plan to
maintain a long and fruitful trading career, you should be
prepared to eventually encounter some losing trades. This is
not a bad thing. This is simply how the world of market
investments works.
It is perhaps because of the
reality of losing that makes investors extremely eager to
regain what they've had to let go. This is one reason why they
become obsessed over finding perfect indicators and systems
that will give them numerous wins. What they should realize
though is that their main objective should be to survive and
not merely to increase their number of wins.
Surviving despite investment losses is crucial for one simple
reason. Common sense will tell you that if you don't survive in
the market, you will get thrown out completely. This means
losing all your trading capital, leaving you with nothing to
keep on rolling over to take advantage of profit opportunities.
This is like saying that it is not the number of runs in a game
that matter, it is staying in the game that does.
One way to help you make sure you
don't get ejected early on is to set a specific percentage for
your maximum loss. Doing so will remind you of the exact degree
or magnitude of stock loss that is bearable for you. With a
figure set in stone, there is no danger that you will have to
let go of everything all at once before you are even given the
chance to make initial profits.
Different traders follow different
percentage limits. The most careful traders only allow
themselves a percentage of about 1% of their trading floats.
For others however, this is a far too small figure that will
also therefore present lower profit potentials. It is often
more appropriate to settle for around 2% because this will give
you a wider margin to earn from the market.
What is especially beneficial
about setting limits for your stock losses is that you make it
nearly impossible for you to come out as a complete loser. With
the 2% limit, it can take an absurdly long string of defeats
before you are able to erode your float entirely. This is
because every single loss is computed based on the current
available float and not on the initial float that you set up
when you started trading. The smaller your float gets, the
smaller your maximum loss figure.
Of course, setting limits on how
much you can endure to throw down the drain is only part of a
bigger picture. If you want to increase your chances of
surviving even more, you need to work on establishing a
complete money management system. This involves identifying
other crucial elements such as trading float and initial
stops.
You can't let investment losses
beat you. Even if you can't entirely avoid them, you can make
sure that they don't get the better of you. Figure out your
maximum loss limits as well as the other parts of your money
management plan so you can start surviving in
trading.
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Losses?
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