Why Traders are unable to cut losses during trading?

By | April 27, 2012

As 2011 come to an end let me share an important aspect of trading

Keeping losses small in order to avoid huge losses

Why is that so?

From a psychological point of view nobody wants to sell at a loss as in most situations in life making mistakes and admitting them is associated with being a loser. That’s why most people prefer sticking to a losing position. They don’t want to be labeled a loser. So they start hoping their position will turn around and end up being a huge winner. The stock then keeps tanking. Then they hope they will be able to sell for a break even. The stock then goes down even more. That’s when being objective and balanced isn’t possible anymore. Losses have become huge and they are trapped.

The cost is simply huge. You lost money. You lost time. There’s an opportunity cost as well as during that time other stocks would have made you a profit. You lost huge amounts of energy as you couldn’t get this stock out of your mind.

Quint Tatro:

When a position is getting ready to stop you out at a loss, do you find yourself bargaining with the name? Do you find your frustration level rising? Do you justify the reason for the move against you, and give it a little more room, only to get stopped out at a bigger loss? Or even worse, perhaps you now find yourself sitting on a double-digit loss, and are frozen with what to do with this now sinking ship?

And perhaps the biggest fear for a trader is closing out a position only to see it run back in their favor moments later. Trust me when I say that every trader, seasoned or not, has these moments when stop levels are hit and they hesitate with pulling the trigger.

How to avoid this Follow the below 3 Points

Keep Your Cool

“Deciding when to cut your losses is one of the toughest decisions for anyone to make, but traders at the top of their game know that they always have to make the decisions they need to make, which may or may not be the ones they want to make”

 Get Comfortable With Being Uncomfortable

“In the trading world, you will either make money or lose money on any given trade. All that matters in the end is making more money when you’re right than you lose when you’re wrong.  Knowing this, traders have learned to accept failure as part of the game, but they also use the information they acquire from their mistakes as a learning tool.  Frequently, what they learn from losing money is more valuable than what they learn when they make money”

Make Yourself Accountable

“Commitment, perseverance, and discipline are the characteristics that move people beyond desire to action, that differentiate mediocrity from greatness, and that separate greatness from superstardom”

 

Avoid huge losses at all cost. Avoid thinking in terms of huge gains as well. Stay balanced. Stay focused and calm.

 

10 thoughts on “Why Traders are unable to cut losses during trading?

  1. sunil.bn

    Nice though sir.. need to keep on reading this when we hesitate to square off wen stock hits SL

  2. Kaushal

    Greed is built into the human psyche. Paradoxically, by reducing greed, you improve your chances of getting rich. Never check the price of the stock you’ve sold is a very common saying. But in that sense the stock market is a bit unfair in that prices get quoted every day, every minute and every second, unlike say, a real estate investment.
    thought provoking post as ever.

  3. Bramesh Post author

    Dear Sir,

    Wishing you and your family a Happy and Prosperous new year 2012.

    Thanks a lot for your Kind words.

    It my pleasure that you find the stuff posted on site interesting and its helping you out in your trading.

    Do let me know if you feel any improvement is required.

    Have a Profitable year 2012

    Rgds,
    Bramesh

  4. Bramesh Post author

    Dear Sir,

    Thanks for Wishes. Wishing you and your family a happy and prosperous new year 2012.

    Rgds,
    Bramesh

  5. Bramesh Post author

    Thanks sir..

    Have a Profitable year 2012

    Rgds,
    Bramesh

  6. Veer

    Dear Bramesh,

    Wish you a Happy & Prosperous New Year.

    Regards,

    Veer

  7. R.S.Ananda

    respected sir,

    2011 was very special and wonderful to me because i came in touch with your site and i find interest in reading and re-reading your blogs. I really find your writings have encouraged me to trade and learn while trading. I might not have earned more, but still i find very interesting in trading after going through your writing. Thank you very much sir.

    Please accept my heartfelt HAPPY NEW YEAR = 2012 greetings to you.

    anand

  8. Bramesh Post author

    Thanks Pravin for Pointing out the mistake,It has been corrected

    Rgds

  9. pravin

    Hello sir,

    I am not able to see any other blogs in the blogrolls, its showing page not found.. can you give proper link for that..

    thanks,
    Pravin

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