Some people say, "I can't sell that stock because I'd be taking a loss." If the stock is below the price you paid for it, selling doesn't give you a loss; you already have it."
-William O'Neil
-William O'Neil
Why Hold a Stock Against You?
In this game, and make no mistake about it this is a game, sometimes things happen that we can’t control.
Examples of this are:
1) You’re long a stock and bad news breaks on it
2) The system suddenly has some difficulties
3) You hit the wrong key(s)
1) You’re long a stock and bad news breaks on it
2) The system suddenly has some difficulties
3) You hit the wrong key(s)
These things happen and there’s not much that we can do about it. However, there are also times when we can control what happens. More specifically, when you have a position going against you and you just hold it. And hold it. And hold it some more.
What’s the point of doing that? You’re not helping anybody, least of all yourself. There are many reasons NOT to hold a stock against you. They are:
1) The stock can go much more against you.
2) You can always reassess the situation and reestablish your position.
3) Transaction costs are cheap. Ticket charges are much higher elsewhere, especially at large trading firms. Use inexpensive transaction costs to your advantage. Let it limit your risk and decrease the need for you to be correct as often with a trade.
4) We don’t really know whether the stock is going up or down.
5) Institutions set the prices of stocks, not our opinion about the correct price of a stock. You should have a bias on a stock’s but do not be wedded to those opinions. If the stock starts to move against your bias, then exit and reevaluate.
6) If you cut your losses continually, you do not have to be on the right side of a stock more than 30 percent of the time.
7) If you cut your losses, you will never be in danger of a huge rip. Stocks act irrationally at times and cutting your losses will protect you against these unusual moves.
8) If you learn to read the tape, the stock will tell you where it is going. Let the stock tell you where it is going.
9) We know of no reason to hold a stock against you. None. We have asked other successful traders and they do not have a good reason. There is just no good reason to hold a stock against you, so don’t.
2) You can always reassess the situation and reestablish your position.
3) Transaction costs are cheap. Ticket charges are much higher elsewhere, especially at large trading firms. Use inexpensive transaction costs to your advantage. Let it limit your risk and decrease the need for you to be correct as often with a trade.
4) We don’t really know whether the stock is going up or down.
5) Institutions set the prices of stocks, not our opinion about the correct price of a stock. You should have a bias on a stock’s but do not be wedded to those opinions. If the stock starts to move against your bias, then exit and reevaluate.
6) If you cut your losses continually, you do not have to be on the right side of a stock more than 30 percent of the time.
7) If you cut your losses, you will never be in danger of a huge rip. Stocks act irrationally at times and cutting your losses will protect you against these unusual moves.
8) If you learn to read the tape, the stock will tell you where it is going. Let the stock tell you where it is going.
9) We know of no reason to hold a stock against you. None. We have asked other successful traders and they do not have a good reason. There is just no good reason to hold a stock against you, so don’t.
If it is cheap to trade, and what we are doing is trading, then why continue to hold a loser against you? It just doesn’t make sense. The goal is to have a long trading career and the way to do that is to not take big losses. If losses are preventable – prevent them. Refuse to lose!!
Also of note, most good trades go in your favor rather quickly. When a trade is not going your way, and you find yourself hoping and praying, it’s probably time to at least lighten up – if not flatten out your position. Hope and prayer are nice devices, but they can, and have, clouded many a trader’s judgment.
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