Cut loss is hard work, really!

by Posteado por passiontrader

Anybody who trades understand the concept of cutting loss, but not everyone can do it. Why is it so difficult to cut loss? It took me almost 3 years to made myself put that into action. It’s real hard work to fight against my own emotions. Being a stock broker for the last 3 years, I came to realized that if you can’t bring yourself to cut loss, you will not be in this game for long. So what are some of the reasons (or excuses) that traders give themselves for not cutting loss?
1. I can’t reconciled myself to do it
Imagine that you have monitor this stock for the past few days, and after you finally decide to buy, the stock price suddenly fall to your cut loss within 5 minutes after buying. How would you feel? Think most people will start screaming at themselves, “How can this happen to me?”, “Why me?” You will start to hate the market for doing this to you. You just can’t bring yourself to cut loss at this instant. Just 5 minutes into the game and I lose money!! How to accept this? Arrgh…. Well, you better be. There’s a well known saying among traders, “Your first loss is your best loss”. If you don’t cut now, you will probably end up incurring more losses.
2. The stock price will rise once I cut loss
Funny right? It seems that the market knows what you are buying and wants to make a fool of you. You don’t sell, it keeps on falling. Once you sell, the price starts to rise almost immediately. How you hate the market at that moment! It’s just like when you are driving and the lane you are in seems to be moving very slowly. You then decide to switch lane, but only to see the car behind you on the previous lane zoom pass and way ahead of you. You start scolding yourself why you ever switch lane in the first place! It happens, and I’ll guaranteed that it will happen again and again, as long as you are in the market (or as long as you are driving!). I don’t have any strategy that can avoid this, but what I can say is that if you do not cut loss because of this reason, you are going to lose more money than you make in the long run. This I can bet my entire fortune on it.
3. The price will rise in the future. I just need to hold it until then
Sure, it probably will, and I’m not going to argue with you about this. The next question I’m going to ask is, “For how long?” 1 year? 5 years? 10 years? If you leave your money inside the market for that long period, then you are not a trader. If you are not a trader, you shouldn’t be having this problem in the first place! One of the most important thing to have for a trader is cash, and cash flow is the essence of survival. If all your money is “stuck” in the market, then where are you going to find money to trade? You will miss all the profitable trades and that’s what we call opportunity costs.
4. As long as I don’t sell, I don’t lose money
Then I don’t see why you are worrying about falling stock prices. It shouldn’t affect you. Who cares if the share price continue to fall. As long as I don’t sell, I don’t lose. Let us be honest with ourselves here. Can you really not care about falling prices? You know in your heart that you lose money if the price continue to fall. it’s just that you do not want to face the problem, and the fact that problems don’t go away if you do not do anything about it. Yes, there maybe times when the price rises again and you make a profit, but do you really make money this way? I don’t think so.
Cutting losses is part and parcel of being a trader. It’s also the most difficult part of being a trader. If any of the above are your excuses for not cutting loss, then please stop them and really do it. If you still can’t bring yourself to cut loss, then don’t be a trader. Find some good companies and invest in them. Like what I said, cutting loss is really hard work. Not many people can do it, but you can if you really work on it.