Trading losses- how do you handle losses?

rvlv · #1 18th August 2006, 11:49 PM

Gents,

LOSS in trading- how do you handle loss?

Loss happens more frequently than profit.
So to control it, we need to have a strong plan and quick actions.

Lessons From Losses

you need to have a fairly high ratio of winning trades to losing trades, EVERYBODY HAS LOSING TRADES. That's part of the business of being a trader. I say a great deal of knowledge can be gained from a losing trade.

1)Before I bought the stock, I noted my exit plan in the event the stock turned against me.
Sometimes the stock did turn down, so I did not exit right away. I decided to hold the stock because I knew a better earnings announcement is due.I expected good earnings news.
The stock had
remained above both horizontal price support,
the 200 day moving average, and
another uptrend support.

I planned to exit on
1)a break below the horizontal price support and
or 2)the 200 day moving average.
Earnings were announced and the net income was up 60% over the same period the prior year, earnings and revenue also were up. Great news.

Guess what? The stock plummeted. It gapped down 5% on the open the next morning and it has continued to fall .
All this followed a good earnings report. I sold out that same day and it just continued to drop for the next two days.

What can I learn from this lousy loosing experience? This trade certainly reminded me that all trading involves risk.

How do I protect my investment?
What actions to take?
In this LOSS situation, I WAS SUPPOSED TO BUY protective PUT OPTIONS BUT this stock has no options. I was supposed to place a stop loss order,
But, I placed an alert.. The truth is a stop loss order would have done no good.

WHY STOPLOSS CANT HELP IN A STEEP SUDDEN PRICE DROP

When a stock falls down, a stop loss doesn't help much since a stoploss sends the order to the market as a market order once the price is hit or passed. Obviously, the gap or price sudden fall would take it through any stoploss you would have placed.

wHAT TO DO in such a situation?
Get out of a position before earnings are announced- is a good practice.
Though the good earnings are announced were great yet my stock dived down. In the future, I decided not to hold onto a stock through the earnings announcement.

Notice and observe how often stocks drop right after an announcement? If bullish, I do a better thing by not holding stocks at the time of the announcement.
Of course, I miss a some big price moves, but it is better than taking a large loss.
I learned to stick to my money management plan because my risk is always limited and even when I take a big rupee per share loss I am still ok overall.
That's why one must have a money management plan. It is also good knowledge that I want to mpve out with my first exit. The proverb is the first loss is the best loss.

I see that a lot of traders quit when they have a bad trade. No trader, is going to have winners every time. I can prove how a trader could make a profit through proper money management even if he lost 60% of his trades. I hate losses and more so, I hate big losses,
Successful trading requires many things:
patience,
money management skill,
knowledge of strategies, risk awareness.
It comes only with hard work and persistence and even then everyone may not be so lucky.

When you risk your money in a trade, you need to assess risk as it applies to you and your personal business plan.
Again, you need to continue your education, paper trade before risking real money and establish a relationship with your mentor -finance consultant .
rvlv

pras20054 · #2 20th August 2006, 05:36 PM

good one to learn, i need this to practise a lot.

Thanks.

cmak · #3 20th August 2006, 05:45 PM

The proverb "The first loss is the best loss".

SIMPLY GREAT.....
I LIKED IT BECAUSE I AM FOLLOWING THIS RULE SINCE LONG TIME.

cmak

rupeevise · #4 20th August 2006, 07:18 PM

great article.... many a times we know this but are not disciplined enough to follow it.....

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