Trading stocks involves buying and selling stocks.
Unfortunately, all the hype surrounds the buying side of the stock market.
Once you are committed all the sales people seem to disappear.
You see lower lows, you see trend lines breaking, you see volume increasing on the downside, you see negative news, you see insiders selling yet with all the information saying this stock is going down you hang on.
Selling stocks is tough.
Perhaps you are a long-term investor and never sell.
That is one way to play the game.
However, when you are a trader and do not want to become an investor you must sell.
Why do people have such an emotional attachment to a losing stock? Why can't they sell the loser and use the cash to buy a winner? I think one of the main reasons traders find it difficult to sell is that from an early age people are trained not to make mistakes.
This training happens without most people even realizing it and it begins at home and at school.
At the end of the school year the higher your marks are the happier you are.
During the year you may have made some errors however, when it counted you came through and passed your test.
Now think of the reaction a child gets when they come home with a failed grade.
Do they get heaps of praise, presents, rewards or do they get ridicule, told to buckle down, privileges taken away or worse.
In most cases, my guess is the latter.
This is unfortunate as in order to learn people generally fail first and succeed second.
What happens to many is that they get so frustrated about losing that as they grow older they will do anything not to lose and as such end up living a very average life.
You have to understand that trading is a probability game.
In order to win you have to play and when you play you will eventually lose.
The trick is to lose less than you win.
One of the first rules of trading is to cut your losses and let your winners run.
Let's look at a basic example: School 90% pass, brilliant 10% fail, stupid Stocks - 100 trades 90% of trades make $100 (+9,000) 10% of trades lose $1000 (-10,000) Results in a loss of $1,000 Or 10% of trades make $1000 (+10,000) 90% of trades lose 100$ (-9,000) Results in you making $1,000 even though you were right just 10% of the time.
This is why you repeatedly hear stock traders say: cut your losses and let your winners run.
This is not an easy job because while teachers and society in general are quick to tell you below 50% is a failure there is very little said about the subconscious mind.
The subconscious mind works on habits.
You are programmed from an early age to win.
Therefore, selling a losing stock for most people goes against their training whether they realize it or not.
Essentially, selling a loser has not become a habit.
However, since most people do not start to play the stock market until they are 20+ years old they have 20+ years of subconscious programming to erase.
To trade well you need to develop the habit of selling your losers quickly and without emotion.
Look at the evidence and sell.
No remorse, no second guessing just get rid of the position.
Your job is to break this unconscious habit that has been developed over 20+ years.
It will take time.
Prior to buying your next stock, identify when to sell your stock and get out of the position.
Next, either place a stop loss with your broker or sell the stock when it breaks through your sell zone.
In some cases, traders will place a stop loss order as soon as they have purchased a stock.
Move your stop up as the stock advances and never move it down.
There will be times that your stop will be hit and the stock will rebound right after that.
I have been taken out on the low of the day, it happens.
Expect it and live with it.
This is why trading is an art not a science.
You cannot control everyone that owns the stock that you own.
When someone gets a margin call and chooses to sell a large volume of a stock you own, resulting in your stop being hit, don't take it personal, it is just part of the game.
Over time and a number of trades you will see that the weak stocks are being taken out while the strong stocks continue to advance.
Trading is a probability game.
All you can do is put as much probability on your side as you can prior to entering a trade.
Unfortunately, all the hype surrounds the buying side of the stock market.
Once you are committed all the sales people seem to disappear.
You see lower lows, you see trend lines breaking, you see volume increasing on the downside, you see negative news, you see insiders selling yet with all the information saying this stock is going down you hang on.
Selling stocks is tough.
Perhaps you are a long-term investor and never sell.
That is one way to play the game.
However, when you are a trader and do not want to become an investor you must sell.
Why do people have such an emotional attachment to a losing stock? Why can't they sell the loser and use the cash to buy a winner? I think one of the main reasons traders find it difficult to sell is that from an early age people are trained not to make mistakes.
This training happens without most people even realizing it and it begins at home and at school.
At the end of the school year the higher your marks are the happier you are.
During the year you may have made some errors however, when it counted you came through and passed your test.
Now think of the reaction a child gets when they come home with a failed grade.
Do they get heaps of praise, presents, rewards or do they get ridicule, told to buckle down, privileges taken away or worse.
In most cases, my guess is the latter.
This is unfortunate as in order to learn people generally fail first and succeed second.
What happens to many is that they get so frustrated about losing that as they grow older they will do anything not to lose and as such end up living a very average life.
You have to understand that trading is a probability game.
In order to win you have to play and when you play you will eventually lose.
The trick is to lose less than you win.
One of the first rules of trading is to cut your losses and let your winners run.
Let's look at a basic example: School 90% pass, brilliant 10% fail, stupid Stocks - 100 trades 90% of trades make $100 (+9,000) 10% of trades lose $1000 (-10,000) Results in a loss of $1,000 Or 10% of trades make $1000 (+10,000) 90% of trades lose 100$ (-9,000) Results in you making $1,000 even though you were right just 10% of the time.
This is why you repeatedly hear stock traders say: cut your losses and let your winners run.
This is not an easy job because while teachers and society in general are quick to tell you below 50% is a failure there is very little said about the subconscious mind.
The subconscious mind works on habits.
You are programmed from an early age to win.
Therefore, selling a losing stock for most people goes against their training whether they realize it or not.
Essentially, selling a loser has not become a habit.
However, since most people do not start to play the stock market until they are 20+ years old they have 20+ years of subconscious programming to erase.
To trade well you need to develop the habit of selling your losers quickly and without emotion.
Look at the evidence and sell.
No remorse, no second guessing just get rid of the position.
Your job is to break this unconscious habit that has been developed over 20+ years.
It will take time.
Prior to buying your next stock, identify when to sell your stock and get out of the position.
Next, either place a stop loss with your broker or sell the stock when it breaks through your sell zone.
In some cases, traders will place a stop loss order as soon as they have purchased a stock.
Move your stop up as the stock advances and never move it down.
There will be times that your stop will be hit and the stock will rebound right after that.
I have been taken out on the low of the day, it happens.
Expect it and live with it.
This is why trading is an art not a science.
You cannot control everyone that owns the stock that you own.
When someone gets a margin call and chooses to sell a large volume of a stock you own, resulting in your stop being hit, don't take it personal, it is just part of the game.
Over time and a number of trades you will see that the weak stocks are being taken out while the strong stocks continue to advance.
Trading is a probability game.
All you can do is put as much probability on your side as you can prior to entering a trade.
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