Shave the Losses

It is that simple. If you are holding on to an investment/stock and you aren’t making any money off it, then why are you still holding on? The one key problem that many investors commit is not setting a proper game plan. Eventually, if you hold your stock into a period of loss, you will be stuck in a period of recovering.

Now that is not to say that you can’t hold any stock for a loss, but every trader should have a set period in their mind for how long they want to work with the stock. Whether it be a set target price or time frame, there should be something in your head that clicks when it is time to move on.

When you are stuck holding onto a stock that is not working, you are holding capital that can very easily be used on something that will work now. If you really feel that Stock A will work eventually, then keep watching it and re-enter the stock when you feel it is time, but why should your money be kept hostage?

Before I purchase any stock I determine a point of where I would signal the trade a loss. You can see my example in the chart below. If I was to enter at $77, then I would consider it a failure at $76. It is not that I signify a point a loss, but each stock has different signals.

For one stock, I may consider a 5 cent drop a loss; nonetheless, I make sure to have a “failure” plan in place, so I am not wasting my time on possible opportunities.

If stock A went down 3 points, but you held it because you knew it would eventually get to the positive target of plus 6, then sure by the time it got to the target that would be a 9 point jump; however, for you it would still only be a 6 point jump. During that timespan you may have been able to find tons of stocks that jumped 9 points.

Everything really determines on what your trading plan is, but if your goal is to make a good return, then holding on to your losses is not going to get you there.