Arguably one of the most important and also painful lessons I've learned is the psychology during losing trades versus winning trades and how critical it is to use a stop-loss in order to limit a loss.

A stop-loss is a price you set prior to initiating a trade and if your trade hits that price you are OUT. Here is an example:
  • Entry Price: $10.00
  • Exit Price "Stop-Gain": $10.70
  • Stop-Loss: $9.30
Interestingly, I almost always hit my "stop-gain" points. Like clockwork, I eagerly sell wins at or near my target exit price when I am winning (in the above example, I'd sell at $10.70 in a heartbeat). But for some reason, selling losses is another story - I sometimes hold them forever to avoid taking the loss! In the above example, the price could get down to $9.00 and I'd think to myself "well, I might as well hold it, how much worse can it get?" or "I don't want to sell it now because as soon as I sell it it is going to rebound and I'll miss out!". I'd basically keep talking myself into holding it hoping for the rebound.

I love to compete and I fight hard to win and I HATE to lose. This is potentially a recipe for financial disaster if you are not able to remain humble and not trust even your best preparation. The saying "stay humble or get humbled" is so true. Condition yourself to feel good about the trade win or lose. Set your stop-loss with each entry point and maintain the discipline to exit when your stop-loss is triggered and live to fight another day.

Trading Tide Levels:
  • Mid Tide (S&P hit a Low Tide of 2801 on May 13, 2019 coming off a High Tide of 2954 on May 1, 2019)
  • Moving toward Neap Tide (VIX hit a high of 23.38 on May 9, 2019 and was at 16.84 at the time of this post)
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This is for informational purposes only and the information provided does not encompass all possible or probable outcomes and nothing posted here is an indication of future results. Nothing in this blog is a guarantee or promise of future investment returns and investing in stocks or bonds carries risks including losing your entire investment. I do not recommend, advocate or endorse any third-party links, resources or advertisements of any kind. Any investment decisions are recommended to be in conjunction with a Certified Financial Planner, a comprehensive and personal financial plan and all other components that make up your own financial situation.

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