Avoiding Losses In Trading

By Lupie Gonzales...

Your hunt for information regarding avoiding losses in trading tells me your head is in the right place. Most rookie stock traders focus on materialism or the opposite of risk aversion. Newbie investors think how much money they will make if only, and not about how they can decrease trading losses.

Is it possible to avoid losses in stock trading? Forget that idea. My own 10 year accuracy varies between 70% and 80%. Hence, 20% to 30% of my trades result in losses. Nevertheless, there are actions you can take to reduce losses when stock trading.

1 - Do not strive to get back your losses. The most terrible action you can do subsequent to a loss in stock trading is to decide that on your next trade you will make back the loss. Loads of newbie traders will put on a riskier stock trade in a small cap or any stock they think can appreciate in value even greater than their earlier losing stock trade with the thought that they will make back the money they lost. Don't do this. Putting on a riskier trade implies you now improved your chances of having a subsequent losing stock trade. Do not get materialistic and lose all feeling of fear because of a loss. Instead explore your trading method. Did you hold to your stop loss strategy? Did you rationalize and give reason for why you were continuing to hold the losing stock even despite the fact that your original profit thesis was violated? Make all adjustments you need to your trading system then move on.

2 - Hold to your trading method. Stop jumping around from stock trading method to trading system when you encounter a loss. No stock trading method is perfect. Stick with your stock trading method and make changes as required but don't jump from trading system to trading system. Get exceedingly good at a stock trading system before you make a decision to knife it. Additionally, don't get frightened and become too conservative.

3 - Confirm the trend of the most important indices. Use either the S&P 500 or the Nasdaq and find out the trend prior to buying or shorting a stock. The goal is to trade with the trend, not against it.

4 - Figure out your profit thesis before you enter the stock trade. The profit thesis has got to include what percentage profit you will have before you sell, and what percentage loss you will have before your sell. You should never risk more than you are trying to profit. Case in point, 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 let your winners ride.

5 - Time your entry better. I have discovered that when I go long a stock, if I am up the initial day I bought the stock, my probability of it being a winning trade for me go way up. The entry is so essential that a few famed 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 system I use to time my entry better. If you use a Scottrade account, you are able to make use of this tool.