In the stock trading business, sometimes losing money has become unavoidable. The important thing is that a successful stock trader should not make judgments based on emotions.
Maintaining an unemotional and objective state of mind goes a long way in making balanced and intelligent trading decisions so that you can turn your losses into long-term gains.
There is no doubt that if you have a long-term plan for investing in stocks, you will win even though stock prices fluctuate over a long investment period.
Historical data conclusively demonstrates that despite market bearish fluctuations, corrections and recessions, stock prices tend to go up for a long time. Losses incurred during downturns or downtrends are often covered by the bull runs that follow bear reigns.
As a smart investor, you should use your investment for both the short term and the long term. While certain types of long-term investments such as programmed investments, dividend reinvestment multiply phenomenally in the long run, one should not miss out on today’s day-to-day opportunities that stock trading offers.
While long-term investments like IRAs and Roth IRAs are generally intended for retirement age, you’d also like to take full advantage of market trends that keep changing over shorter periods of time. It is recommended that while you can safely invest 70% in long-term plans, you can keep the remaining 30% to invest in short-term trends.
However, it should be noted that you should invest cautiously on trend reversals. The best strategy is to invest an amount that you are mentally prepared to lose. Also, if the trend changes, you should also be prepared to change with it.
Study the monthly market chart for the stock you are interested in investing in. If the price trend is going down, you shouldn’t take the risk of investing in it in the first place.
Suppose you have already invested in it and the market starts to fall, you should try to sell your shares as soon as you have confirmed on the market charts that the downward trend will continue. You should not wait for your stock price to change because its price may instead continue to fall lower.
How do you confirm that the market is trending down?
You have to understand that the market could have taken around a year to get to the top and then it started to fall. It may well take a year to form a base.
You should study the market trends not just on a monthly basis; you should also study them weekly and daily.
You have seen that the monthly trend is down, which is further confirmed by the fact that the weekly and daily charts also show the most recent down leg.
What do you do if you haven’t sold all your shares and have incurred a huge loss because you made the mistake of waiting for the price to change while the price continues to fall?
How do you make up for your loss even as your stock price continues to fall?
You must, above all, maintain emotional control and patience during this time. You should not take bear market rallies that usually occur every few months as a sure indication of price change.
If, therefore, the downtrend continues, you should look for an opportunity to enter the market by adopting a different strategy to recover your loss.
You should dedicate yourself to selling your stocks short. Borrow some shares from your stockbroker with the promise to pay them back after a while. Sell the shares immediately at the prevailing market price. Since you have confirmed on your monthly, weekly and daily charts that the price trend is heading down, you can wait a while until you believe that the price has fallen to an appreciable level.
Now buy the same number of shares from the market at your reduced price and return them to your stockbroker. In this way, you can substantially recover your loss. You must understand that you may suffer further losses if you continue to wait indefinitely for your stock price to turn.