Wednesday, August 29, 2012

Recognizing a Losing Stock Trade

Trading stocks means identifying stocks that can be a profitable trade and then making a buy/sell transaction.  Inevitably, some stocks will not perform as expected and result in a loss.  Often it is hard to sell a stock at a loss, especially since it was expected to be a gain.  An active stock trader shared with me some four letter words that indicate a stock position is likely to continue to be a loss.
  • Hope.  "I hope the stock gets back to my purchase price."  or "I hope the company news gets better."  Hoping doesn't make good things happen in stock trading.  Usually, it takes a good plan and good execution.   This includes deciding when to cut one's losses.

  • Can't.  "The stock can't go any lower."    The only hard bottom for a stock is zero.   Above that, a downward trending stock can, and probably will, go lower.

  • Must.  "The stock price must be near the bottom."  See Can't.

  • Pray.  "I pray the stock price will go up again."  Asking for a miracle is not a good stock trading strategy.
  • Combinations of these four letter words are only a stronger indication of a dire situation.   For example, "I hope and pray the stock will get back to my purchase price" probably means it definitely is time to sell to prevent any further losses.

    For more on The Practice of Personal Finance, check back every Wednesday.

    This is not financial or investing advice. Please consult a professional advisor.

    Copyright © 2012 Achievement Catalyst, LLC

    1 comment:

    Phone Bill Cut said...

    Nice post. Sometimes it seems better to go ahead and watch it hit bottom if it's already dropped "so far"... but not always the wisest option.