3 Ways To Handle Losing Trades That Doom Us (From The Inside Out)

http://www.guerillastocktrading.com/stock-trading/shocking-confession-i-see-traders-murdered-because-they-cant-take-a-loss Whilst we’ve been kept awake at night wetting our sushi pajamas for horror of losing trades and jumping off our abode, nearly all losing trades come from misconceptions born inside our brains.

This is how the majority of losing trades go down:

1 – Double down. Whatever moron came up with this idea had to be a chap with a lot of money. The earliest hypothesis of doubling down must have come from some intoxicated well-off chap in Las Vegas playing at the MGM Grand Hotel and Casino. The hypothesis of doubling down is straightforward, if a stock you are hanging on to falls 20% in value, acquire double what you first bought. Over time, as poverty-stricken common folk got their hands on the theory, it changed into averaging down, meaning purchasing any extra amount of a stock that you are hanging on to when it drops 15 % or more.

Villainous stock trader Nick Leeson perfected the skill of averaging down into losing trades, or so he thought. This double down stock trading mastermind caused the collapse of Barings Bank, United Kingdom’s oldest investment bank, for which he was sent to jail.

Never fling good money after bad. Never risk more than you are seeking to gain.

2 – Value investing. This strategy must be the brain spawn of wicked institutional traders who hope the stupid common folk will help them in dumping their longs in a down trending stock market. The idea of value investing is straightforward, look at the P/E ratio. If the average P/E ratio for a sector, such as Tech, is 18 and you find a company with a P/E of 12, then you are buying this business at a deep markdown, a genuine valuation pearl, right? Not!

There is a reason a company has a P/E less than a industry arithmetic mean, institutional investors don’t like it as much as they are fond of other companies within the sector.

Nearly all valuation entry points involve buying a company that is within a downtrend. As a result, the majority of value investors buy low and sell even lower.

Never buy a business that is within a downtrend no matter how low the P/E ratio is.

3 – Cling to a losing stock trade until it eventually comes back. This is the intellectual retard strategy. People that do this have no business trading stocks. Their similar to that monkey that grabs the fruit and then the trap closes on the arm. If the monkey would let go of the fruit, he could run away from the trap. But the monkey just can’t let go.

Time is value, it is the material life is made of. Way back in March of 2000 the Nasdaq traded at 5,000. Today it trades at less than half that at 2186. So for the last 10 years, you are still waiting for the market to come back. These are 10 years you could have been investing and making money, eternally consumed. At only 10% a year, you could have doubled your money. But it’s worse than that.

The majority of retards that use this stratagem can’t do arithmetic. Let’s say the Nasdaq dropped from 5,000 down to 2,500 or 50%. The majority of monkey retards believe if the market goes up by 50% they’ll get back to break even. Not so. The stock market would have to go up 100% to get back to 5,000.

Never use buy and hold on a losing stock trade. Get rid of your losses as quickly as possible.

In the episode below I chat a little about the ridiculousness that is value investing.

Duration : 0:6:25