Learn 5 Methods Of Avoiding Losses In Trading

Your hunt for information on the topic of avoiding losses in trading says to me that your brain is in the correct place. The majority of rookie investors concentrate on materialism or the opposite of risk aversion. Rookies imagine how much money they will make if their stock goes up to xx, and not about how they can minimize stock trading losses.

Is it possible to avoid losses in stock trading? No. My own 10 year accuracy rate fluctuates between 70% and 80%. Hence, 20% to 30% of my trades result in losses. Nevertheless, there are actions you can take to lower losses when stock trading.

1 - Do not try and make back your losses. The nastiest action you can do following a loss in stock trading is to make a decision that on your next stock trade you are going to make back the loss. Numerous amateur investors will put on a riskier trade in a small cap or any stock they believe can increase in value even greater than their initial bad position with the thought that they will make back the money they lost. Don't do that. Getting in a riskier trade suggests you just amplified your probability of having a subsequent losing stock trade. Do not get gluttonous and lose all feeling of fear because of a loss. Instead explore your stock trading system. Did you stick with your stop loss plan? Did you rationalize and give reason for why you were continuing to hold the losing stock even while your original profit thesis was broken? Make any adjustments you need to your stock trading system then move on.

2 - Stick with your stock trading system. Quit hopping around from stock trading method to trading method when you undergo a loss. No stock trading method is flawless. Stick with your stock trading method and make adjustments as required however do not jump from trading system to trading system. Become really good at a stock trading method before you come to a decision to knife it. Additionally, don't get frightened and be excessively conservative.

3 - Ascertain 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 idea is to trade with the trend, not in opposition to it.

4 - Determine your profit thesis prior to entering a stock trade. Your profit thesis should 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 attempting to profit. For instance, in company ABC I am planning 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 - Enter your positions at a better level. I have discovered 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 vital that a few prominent traders have gone as far to say that they make their money on the entry, not on the sell. In the video below, I show you a technique I use to time my entry better. If you have a Scottrade account, you will be able to make use of this tool.