3 Losing Trades Methods You Won't Believe Actually Happen
Though we've been kept awake at night wetting our sushi night clothes for terror of losing trades and jumping off our abode, the majority of losing trades come from misconceptions born inside our heads.
This is how most losing trades happen:
1 - Double down. Whatever moron came up with this concept had to be a guy with a lot of money. The earliest idea of doubling down must have come from a intoxicated wealthy guy in Las Vegas playing at the MGM Grand Hotel and Casino. The concept of doubling down is plain, if a stock you are sitting in falls 15% in value, buy double what you originally purchased. As time passed, as broke common folk got their hands on the concept, it mutated into averaging down, meaning buying any extra amount of a stock that you are hanging on to when it drops 12 % or more.
Evil stock trader Nick Leeson mastered the science of averaging down into losing trades, or so he thought. That double down stock trading genius caused the collapse of Barings Bank, United Kingdom's oldest investment bank, for which he was sent to jail.
Never chuck good money after bad. Never risk more than you are attempting to gain.
2 - Value investing. This strategy must be the mind spawn of immoral institutional traders who trust the dumb common folk will aid them in getting rid of their longs in a down trending market. The theory of value investing is straightforward, look at the P/E ratio. If the average P/E ratio for a sector, such as Tech, is 18 and you find a company with a P/E of 12, then you are purchasing this company at a deep price cut, a real valuation pearl, right? Not!
There is a rationale behind why a business has a P/E less than a industry arithmetic mean, investors do not love it as much as they love other businesses within that industry.
The majority of valuation entry points include purchasing a company that is within a downtrend. Hence, most value investors buy low and sell even lower.
Never buy a business that is within a downtrend no matter how low the P/E ratio is.
3 - Hold on to a losing stock trade until it eventually comes back. That is the intellectual retard method. Stock traders that do this have no business investing in the stock market. Their similar to that monkey who grabs the fruit and then the trap closes on the arm. If the monkey would let go of the fruit, he could escape from the trap. But the monkey never lets go.
Time is value, it's the stuff life is made of. Way back in March of 2000 the Nasdaq traded at 5,000. Today it trades at less than half that at 2186. So for the last 10 years, you would still be hoping for the market to come back with this strategy. Those are 10 years you could have been investing and making money, eternally used up. At simply 10% a year, you could have doubled your money. But it is worse than that.
Most retards which use this strategy can't do math. Let's say the Nasdaq dropped from 5,000 down to 2,500 or 50%. The majority of monkey retards believe if the market goes up by 50% they will be back to break even. Not so. The market would have to go up 100% to rise back to 5,000.
Never use buy and hold on a losing stock trade. Get rid of your losses as quickly as possible.
In the video below I natter a little about the silliness that is value investing.
Article Source: FxTradingStock.com
About the Author
Learn to trade like a professional traders with hundreds of stock trading articles and free stock trading videos. Learn the psychology and how to think about losing trades
by: Leslie Hayden
Total views: 30
Word Count: 623
Date: Mon, 26 Jul 2010
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