Secret To Avoiding Losses In Trading
Your search on information on the topic of avoiding losses in trading tells me your head is in the right place. Nearly all amateur traders focus on greed or in other words the opposite of risk aversion. Rookies ponder how much money they will make if their stock goes up to xx, and not about how they can reduce trading losses.
Can you avoid losses in stock trading? No. My own 10 year accuracy rate varies between 70% and 80%. Thus, 20% to 30% of my stock trades result in losses. Even so, there are steps you can take to lower losses when trading.
1 - Don't try and get back your losses. The most awful thing you can do subsequent to a loss in stock trading is to make a decision that on your next trade you are going to make back the loss. Numerous newbie traders will put on a riskier trade in a small cap or any stock they think can increase in value even greater than their earlier bad stock trade with the scheme that they will make back the money they lost. Don't do that. Getting in a riskier trade suggests you just amplified your odds of having a subsequent losing stock trade. Don't get gluttonous and lose all sensation of fear because of a loss. As a substitute scrutinize your trading method. Did you hold to your stop loss method? Did you rationalize and defend why you were continuing to hold the losing stock even despite the fact that your original profit thesis was violated? Make any adjustments you need to your stock trading system then move on.
2 - Hold to your stock trading system. Stop hopping around from stock trading system to trading method as soon as you encounter a loss. No stock trading method is perfect. Stick with your stock trading method and make changes as desired however do not jump from trading system to trading system. Get truly good at a trading system before you decide to machete it. Additionally, do not get scared and be excessively conservative.
3 - Confirm the trend of the major indices. Use either the S&P 500 or the Nasdaq and find out the trend prior to buying or shorting a stock. The objective is to trade with the trend, not in opposition to it.
4 - Determine your profit thesis prior to entering a trade. Your profit thesis must incorporate what percentage gain you will have before you sell, and what percentage loss you will have before your sell. You ought to never risk more than you are attempting to profit. For instance, in company ABC I am going for a 5% to 10% gain, with a 5% stop loss. Get rid of your losses right away but allow your winning positions to ride.
5 - Time your entry better. I have found that when I go long a stock, if I'm up the same day I bought the stock, my likelihood of it being a winning trade for me go way up. The entry is so key that several celebrated stock traders have gone as far to say that they make their money on the entry, not on the sell. In the video below, I explain to you a method I use to time my entry better. If you have a Scottrade account, you are able to employ this tool.
Article Source: FxTradingStock.com
About the Author
Advice to traders who trading system does not make them money, by a stock trader. Find out more at avoiding losses in trading
by: Steve Guy
Total views: 29
Word Count: 566
Date: Sat, 24 Jul 2010
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