Cutting Losses

Cutting losses is an important element in trading. Losses are part of the game. Human as from their nature are not perfect and are prone on committing mistakes. These mistakes can help us in developing our system, strategies, discipline, and mindset. Before buying a stock you need to make a plan. You need to check your supports, resistance and check the trends. You need to write them beside a stock you are currently spotting. Cutting losses fast is important so that we will not become the queen of losses later on. We can use the cash for another opportunity. Here are the rules where cutting is a must:

1. When you are currently bottom fishing a stock that is on a downtrend and the support that you think didn't hold, CUT. There might be another continuation of that downtrend. When you are bottom fishing just put a minimum amount for testing the waters so if you cut it will not hurt.

2. When you are holding several positions and one of your position is the fastest horse. Switch the slow positions and put it to the one showing momentum. This is important so that you can maximize the gain on the one that is in demand.

3. When you bought just by impulse or by hype. If you do not know how to trade it and you were just caught up by your emotions then you just better cut it. Study first how to control yourself. Study how to filter the information found in the internet.

4. When you realized a mistake and the move is against you. Sometimes there are biases on peoples mind based on fundamentals, management, being a loyal customer of the company and other things that can make you really go for the company. But if the price is telling you otherwise then always remember that it is not you that is right but the market is always right. Drop the ego and listen to Miss Market so you can prevent a big loss on sitting on a losing stock and wasting your precious time waiting. The market is all about timing and cycles. If it isn't time for that stock then it isn't time. Leave it and look for another opportunity. After all there are more that 200 stocks in the market to choose on.

5. When you are on a leverage and you made a wrong entry better cut fast! Timing is needed on leveraging. You need to buy a stock and sell it within 3 days or 5 days. So make sure when you are leveraging you are already pro at your timing or else this will make you get burned faster than the usual cash position.

6. When you can't sleep at night. Peace of mind is more important than seeing all your losses everyday. It is even unhealthy to a person who is currently experiencing a losing streak to have the right mindset in trading. You better stop first! Meditate. Breathe. If you are already okay then you can study and check where your mistakes are coming from. How can you prevent yourself from doing the same mistakes. What are your strengths and weaknesses? You need to identify everything before coming back! Practice first on paper if you are already getting it. If you already have been more disciplined than before. If you already have a good batting average then come back. Use real money and make use of your learning to gain already in the market.

7. Never cut on an uptrend stock because of wrong entry and wrong execution. You can either average down or just wait for the stock to come back at your cost. After all an uptrend stock will still be uptrend until the trend bends.