Tony Loton, author of "Don't Lose Money in the Stock Markets," says "If your investment falls by 50% you'll need a 100% rise just to get you back where you started. So when speculating in the stock markets, protecting the money you do have is just as important as making some more."
How true. We all know that - hard as we may try to predict the future - trading is a game of chance. We try to put the right amount of money on a trade so as not to lose too much, yet enough to make out in the end. Of course, the tough part is that we have no idea what will happen in the future, so we must rely on our own analysis.
If you trade a lot, you will be wrong and right a multiple of times. Hopefully, right more than wrong, but again - no guarantees! But without cutting your losses, that one time you are very wrong could end up costing a lot of money.
The best way to cut your losses is to use stop loss orders and trailing stop loss orders if you accrue some profits. Select an exit point before you enter a trade and stick to it. Remember - you can always get back into a market if the trade looks good again. Of course, you will no doubt experience a time with you exit with a loss, only to see the market turn around, only to see that if you stayed in you would have made even more money. Just accept the fact that we are not perfect and move on. In the end, you will be rewarded for having the discipline to stick with a plan that puts you in the best position for success.
Successful traders almost always attribute their success to one thing - cutting their losses.
In the mean time, Good Luck on your journey to success...
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