So today we're going to talk about a subject that 99% of people refuse to discuss: Losses. They're not fun, nobody likes them but they happen and you have to learn to live with them if you're going to speculate in the markets, financial or real estate. There are obviously hundreds of ways to extract money from the markets but the one thing that is true is risk management. The one thing you can control is risk management.
Before any trade is ever take we teach students to have a 'Max Pain' level, this is based of of some technical price level, not dollar amount, to be clear. The max pain level is where can this trade (the price chart) go wrong and at that level is where you're out. From there you can decide how much of your capital you want to allocate to the trade. And to be clear here: There is no 'right amount' to risk, nobody can tell you that, you figure out what you're comfortable with then that's your risk.
From there we try to find at least 3 price targets: Conservative, Moderate & Aggressive. So now you have what you can lose and what you can gain before you make the trade. If you do it this way taking a loss shouldn't be hard, in fact, it should be as easy as taking a win. It just becomes a process. Sometimes you're wrong but if you stay wrong then that's on you.
There's this scene from the show Billions where Wendy Rhoades calls out a portfolio manager on his lack of performance. The scene starts at 1:25, its a great little scene where she says he knows he's holding on to losing positions.
The thing with active trading is this: You need to be active. Never get tied to a stock or an idea because one trade will NEVER make you rich, it's a series of trades over time of grinding it out that does. Now most, when they hear this, it sounds like work. Yea, you actually have to monitor positions and be active if you want to trade. This isn't real estate where you buy a house and it's all apple-pie for 4-5 years as it appreciates. The lesson I try to cover today comes on the stock HTZ .
If there's ever a trade you can't say "Yea, I'm ok with losing this amount with the stop" then you shouldn't take the trade. It's as simple as that. Losses happen all the time and there are no 'perfect' days but letting a loss continue to go is a recipe for disaster.
Hope this helps.