There are few things more discouraging than making a trade on the stock market that goes exactly the opposite direction than you were planning. This stock exchange tutorial will show one thing that is more devastating: holding onto that trade well past the point when you should have exited. Learning how to cut your losses may be one of the most important stock trading skills you ever learn. There is something about selling a stock for a lower price than you purchased it that seems intuitively wrong to most investors. It is hard to pull the trigger to close a position when you know the result is that you will have less money than you had before you entered the trade. It may not be easy or seem “right”, but cutting your losses will save you an incredible amount of money over the course of your trading career.
The phrase “getting back to even” could cost you more money than any other if you follow it for the wrong reasons. Every day trader has losing trades, it’s a part of the job. Not even the most skilled, highly paid analysts are right every time they make a prediction. The key to managing your money is to get out of the bad trades before they turn into horrible trades. I find that it is easier for people who have never had strict money management with regards to stock trading to set up a hard stop loss percentage.
The easiest way to force yourself to sell when the trade goes wrong is to already have that order placed before the stock starts to move down in price. Immediately after you purchase a stock for trading set up a stop order for the max amount you are willing to lose on the trade. The point of this trading stocks tutorial is for you to make it a habit to enter your stop loss when you start a trade. If you know when you are going to get out even before you get into a trade you will be way ahead of the game.