Getting Even
Aug 31, 2010

Getting Even: A Trader's Blind Spot

One of the characteristics of a trade that loses money is that the trader often feels hat he/she made a mistake.  It is a misconception.  A trade should be defined as 'good' when the rationale behind the trade is valid, not when the trade earns a profit.  If risk/reward was within your comfort zone, if your analysis of the stock was accurate, and if the trade was sized properly, there's not much more you can do.

We must accept the fact that we gather information and make the best decision that we can make.  then it is out of your hands.  The market does not always cooperate, and we must accept the fact that losses occur.  All by itself, the fact that money was lost,  does not mean anyone made a mistake.

Along with the concept of losing money, most traders feel a 'need' to get back to even.  They hold onto positions that are no longer right for them to own - and that is a mistake.  It's okay to take a loss.  It's a good idea to get out of a trade when your reason for making the trade is no longer valid.  Perhaps a recent earnings report demonstrates that the company's future growth is not going to meet your expectations.  if that's the case, it makes little sense to own the stock when the very reason you bought it is no longer valid.

Please learn to think in terms of investing in positions with the intention of making money going forward.  If a current position does not meet your expectations, don't wait to get back to even to sell it.  Sell it now and find a more suitable investment for your money.

Mark D Wolfinger

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