In the example above, investors who bought the breakout in Visa back in April 2010 could have accepted a small loss of only 4 or 5% when it was clear that the breakout had failed. Those who held on stubbornly are now sitting with a much greater and unnecessary loss. Click on chart to enlarge
It’s true that the stock market can be very risky, however, what can off-set that risk and make it a worthwhile opportunity is instant liquidity, which gives you a degree of control over the risk. You must learn to use this to your advantage.
As a speculator, your account (meaning, your cash) is your most precious asset. You worked hard to earn it and build it, so you should work even harder at protecting it, because it is much easier to lose quickly than it is to gain.
The great advantage of stock investing over virtually every other investment such as real estate, land, art, etc. is instant liquidity; the ability to always be able to sell at the current price.
Attaining a high level of performance in the stock market does not require that you “bag the elephant” or hit “home runs” on most of your trades. In fact, you can achieve huge success in the stock market without ever hitting a home run. That’s right! What’s required is that you protect your account and lose small amounts when you’re wrong while consistently compounding decent gains. This is far more important than any other aspect of your trading, plain and simple.
By refusing to cut losses you give up the greatest advantage the stock market offers; the ability to sell immediately and maintain a positive reward/risk ratio.
Every 50% loss starts as a 10% loss. The only way to protect yourself is to accept a small loss before it snowballs into a big one. During my 27 years as a stock trader, I have not found a viable alternative.
There’s a fortune waiting for you in the stock market if you learn to do what most people won’t do. The majority of investor’s DO NOT cut losses short, and in turn, give up the greatest advantage Wall Street offers.
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Mark Minervini
Posts
Hi Mark, during the January pullback you felt fairly confident it would amount to just a garden variety correction with higher prices to follow. You have so far withheld judgement on this pullback. Do have any updates on your thoughts as far as the severity of what we might be encountering?
ReplyDeletehugo99,
ReplyDeleteLatest market commentary:
http://is.gd/cfwPR
-Mark
Mark,
ReplyDeleteHonestly, I hate loses--any type. I consider this my weakness because I have no stomach for it. I would cut the trade because I can not afford to take big loses.
But the way you put it, it's actually a good thing to not take big loses because I think it's true--harder to gain, easier to lose...so it's best to cut loses short.
Thanks.