Stock Losses- Your Goal Should Be Survival

Posted by Credit expert

September 6, 2010

There is no way that you can completely avoid stock trading losses. If you imagine to one day have a thriving trading profession, you have to accept and prepare for the eventuality of losing in a couple of trades. There is nothing negative about doing so. This is just how trading is and you need to work around this fact.

One reason why traders may sometimes become too impatient to make up for losses is because of the idea of inevitably suffering losses. They may become extremely caught up in identifying flawless indicators that will lead to spectacular gains. It is really more appropriate though to try to survive rather than to just generate numerous winning trades.

Surviving despite investment losses is crucial for one simple reason. Common sense will tell you that if you don’t survive in the market, you will get thrown out completely. This means losing all your trading capital, leaving you with nothing to keep on rolling over to take advantage of profit opportunities. This is like saying that it is not the number of runs in a game that matter, it is staying in the game that does.

A very good safety precaution to keep you from getting thrown out of the market is to identify your maximum loss limit. With a maximum figure in mind, you will always be within tolerable stock loss limits. If you make sure that your maximum loss rule is set on paper, you can be sure that you never have to erode your capital before you can get the chance to make profits.

Different traders follow different percentage limits. The most careful traders only allow themselves a percentage of about 1% of their trading floats. For others however, this is a far too small figure that will also therefore present lower profit potentials. It is often more appropriate to settle for around 2% because this will give you a wider margin to earn from the market.

Indicating stock losses is especially helpful because doing so is the only way you can prevent losing everything. Maximum loss is calculated with present available float under consideration and not past initial float. This means if your float shrinks, so will your maximum loss figure. You have to endure a very long series of single losses before you completely lose your trading float. No systematic trader is so unlucky as to have a steady string of losses and no wins.

Naturally, identifying how much you can let go of is not the end of the story. You will be able to put yourself in the best position to survive losses if you pour some attention into the other components of a trading money management plan. This means you also need to set your initial stops and your exact trading capital.

You can’t let investment losses beat you. Even if you can’t entirely avoid them, you can make sure that they don’t get the better of you. Figure out your maximum loss limits as well as the other parts of your money management plan so you can start surviving in trading.