Stock Losses - Your Goal Should Be Survival

One fact every trader should accept is that stock losses are inevitable. If you plan to maintain a long and fruitful trading career, you should be prepared to eventually encounter some losing trades. This is not a bad thing. This is simply how the world of market investments works.

It is perhaps because of the reality of losing that makes investors extremely eager to regain what they've had to let go. This is one reason why they become obsessed over finding perfect indicators and systems that will give them numerous wins. What they should realize though is that their main objective should be to survive and not merely to increase their number of wins.

Surviving despite investment losses is crucial for one simple reason. Common sense will tell you that if you don't survive in the market, you will get thrown out completely. This means losing all your trading capital, leaving you with nothing to keep on rolling over to take advantage of profit opportunities. This is like saying that it is not the number of runs in a game that matter, it is staying in the game that does.

One way to help you make sure you don't get ejected early on is to set a specific percentage for your maximum loss. Doing so will remind you of the exact degree or magnitude of stock loss that is bearable for you. With a figure set in stone, there is no danger that you will have to let go of everything all at once before you are even given the chance to make initial profits.

Different traders follow different percentage limits. The most careful traders only allow themselves a percentage of about 1% of their trading floats. For others however, this is a far too small figure that will also therefore present lower profit potentials. It is often more appropriate to settle for around 2% because this will give you a wider margin to earn from the market.

What is especially beneficial about setting limits for your stock losses is that you make it nearly impossible for you to come out as a complete loser. With the 2% limit, it can take an absurdly long string of defeats before you are able to erode your float entirely. This is because every single loss is computed based on the current available float and not on the initial float that you set up when you started trading. The smaller your float gets, the smaller your maximum loss figure.

Of course, setting limits on how much you can endure to throw down the drain is only part of a bigger picture. If you want to increase your chances of surviving even more, you need to work on establishing a complete money management system. This involves identifying other crucial elements such as trading float and initial stops.

You can't let investment losses beat you. Even if you can't entirely avoid them, you can make sure that they don't get the better of you. Figure out your maximum loss limits as well as the other parts of your money management plan so you can start surviving in trading.