Global Markets have been in panic mode from past month has lost significant value and we have seen capitulation in market with multiple circuits both on upside and downside. With such sudden fall many traders are caught of wrong foot and now finding it difficult to cut their trading looses and go with the main trend.
The fear most of traders have What if as soon as i cut down my long positions in Nifty/Stock reverse. With such inhibition in mind they keep on holding the and at worst keep averaging their losing trades. The end result market forces them to cut their positions when they are unable to fulfill the margin calls.
Most of traders are aware of this age old adage ” A trader you should cut your losses short and let your winners run.“Still most of traders work against this and keep blowing off their account.
What Stops traders from adhering to this adage and protecting them from trading loss ?
The ego and subconscious are the main reason why traders are unable to cut losses .If you are unwilling to accept you are wrong and move on it is all too easy to not keep your losses small, but alas! its not true in trading life.
Our Ego says How can i be wrong ? We will look for reason which justify the situation and keep fighting the situation till it does a permanent damage to our trading account.
In real life if you are not willing to use an stop point you can also let situations run far further than ideal for your happiness.
Take as an example a bad situation with a friend or family member that has happened in the past where neither is willing to accept that they are wrong. At a certain point it’s often best to just take your loss. Accept that what occurred has occurred and that you are 100% the source of your own reality. Draw a line in the sand and start afresh.
The great thing in life is that if we accept that we are completely and utterly responsible for everything that happens to us we have a new opportunity every minute to begin again. To put another trade on and get in line with the major trend.
Just like with trading at big fund houses, they have very very strong risk management rules, if certain amount of loss is made on capital they will just cut their position without having any second thought. Its the strong risk management which saves them. Any big company if it does not follow they will be wiped off remember Lehman Brothers market maker had to file for bankruptcy as they did not expected the reality.
Three reasons to cut your losses:
- While cutting a loss seals your failure, it also embeds a life lesson in you.
- It provides the means to move on with your life.
- Cutting a loss usually creates an opportunity for next trade
Realize that you don’t always have to be in the market; that being in cash is an option. You can do this and spend the time building your Trading strength by learning and implementing trading strategies and to be better prepared for coming opportunities in the future.
It all starts with getting rid of the need to be right and thus unable to accept your ability to get things wrong, learning all the time and accepting complete responsibility for where you are in life.