Wins and Losses are familiar to us all, the pain of loss and the joy of a win. There is no confusion there.
However in considering the loss of a trade, the strategy is usually sound, it is the trader that came up short.
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."
Plan and place stops equals your plan to win, and you are prepared to have a loss but make it through to continue trading. A look at the traders psychology of loss taking is in order here.
All professional traders understand they must know where they are getting out before they get in. They have to know ahead of time what a wrong trade looks like so they can exit it quickly. This is a rudimentary fundamental that EVERY professional trader knows the answer to.
Can you answer the following questions?
1.) What are the indicators for staying put, or getting out?
2.) Is there a set point that indicated to you to sell losing stocks?
3.) Is there a set point for you to break-even by moving your stop?
If you can't answer these questions, you're not alone. And what it means is that you need to establish some rules for yourself, especially when you go to short stocks. But, all the trading rules in the world are meaningless if you don't use them. That's why you and I need to "talk turkey" about what's really going on with you when you refuse to manage your risk in a proactive and professional way.
There are 2 base reasons why Investors won't take a loss:
1. Admit they are wrong? No Way!
A realized loss is a great big unavoidable acknowledgment of wrongness. For many traders, this is just too painful to admit. It's interpreted as an allegory for a total life failure or feeds a persistent, negative self-image.
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.
These two categories of people are not looking at the trading business with clear eyes. They are looking at it with blinders on and this narrowed vision is plaguing traders everywhere. Big business, small business, large portfolio and small, the elite crowd and the common man.
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.
Winning and losing traders have a different view of the pain from a loss, winners don't take it personally. They look at the loss and see that they need to change their approach or execution not that they are personally flawed.
A winning trader distinguishes himself from what he does. They are aware that their worth as a human being is not linked to their skill at trading, but that they will need to increase their skill and experience to improve their approach and execution. They use the pain they feel to motivate themselves and increase their drive to be 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.
Stay true to my tried and true ETF Trend Trading System and develop the habits of a winner. Apply yourself, ask questions, and observe your position size as it relates to your portfolio and your trading trends will move to the winning side.
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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