One of the biggest problems a trader faces is taking a loss on a trade. Personally, I struggled with this problem myself in the early years of my career. Lets face it, nobody wants to lose money and nobody wants to admit when they are wrong. The truth of the matter is that stock trading is a very humbling business and even the best traders in the world will be wrong sometimes.
If you are a trader it is extremely important to know where the trade has gone wrong, and understanding what will void your premise for entering the trade. In many cases, if a trade position has gone against you and is now losing money you should look to get out of that trade. As you know, this is easier said then done. There is something within most individuals that does not make it easy to accept a loss and move on. The legendary trader, Jesse Livermore, used to use a maximum 10 percent loss on all trades when he was at his best. He said when he broke this rule that is when he got hurt trading stocks. Unfortunately, all traders break the rules from time to time and that is usually when they get hurt and take a big loss. Remember, it is usually the big loss that hurts most traders, not the small loss.
Over the years, I have learned to see where the institutional support is located and will place my stop loss just below that level. Think about it, if the institutional crowd does not want the equity, then why would I want it. After all, it is the institutional money that moves markets, not the person at home buying 100 shares of a stock. I find the institutional support/resistance levels by looking at charts. Everyone should get educated on the charts. The charts and the patterns formed represent the money flow into and out of a stock. The patterns that are formed on a chart seem to repeat over and over and are the footprint of human nature. Get educated on the charts and remember, a traders ultimate insurance policy is a stop loss.
Bullseye Trading has now booked 17 consecutive winning trades without a loss!! See EVERY trade and get the next now here!