“You can’t make money if you are not willing to lose. It’s like breathing in, but not being willing to breathe out.”
--Ed Seykota, Commodities Trader.
With risk comes eventual losses. It’s inevitable. No one is perfect at trading. The trader’s ability to quickly recognize losses and act upon them as they’re happening is the key to his success. Recognizing gains and his ability to let the gains continue is the other key to his success. Unfortunately beginner traders seem to do just the opposite. As one of their investments begins to increase in value, they lock down the gains by selling the stock and declaring victory. They’ve mastered the stock market with their gain. Their losses, unfortunately, are left to sit in their accounts as they whittle away into oblivion. The beginner trader has trouble comprehending how he made an error in judgement when he bought the stock. Surely the stock will turn around and do as expected, but they rarely do. Eventually capitulation occurs and the stock is sold at a major loss. Enough of these kinds of mistakes will eventually eliminate the trader from the market.
The only salvation for the trader is developing a trading plan. Know the exit before the entry. In the end, the losses are not the problem. It’s all how the trader deals with the losses. A trader with a good trading plan in place will rarely have a large loss because his plan will protect him.