Rule of Thumb on How Much Loss to Take
I was presented with the following question from a visitor to my site.
“I like to trade the overall market (QQQQ). Is there a rule of thumb on how much loss to take before I sell a losing position? I'm always scared if I pull the trigger and bite the bullet, as soon as I get out, the market will rally but if I don't, I'll sit on it until I have lost a few thousand dollars. It's frustrating at times.”
My conclusion statements follow.
This is not intended to be flippant, but the amount of loss to take is the amount of loss you should take according to your technical analysis system. The Ctabs method/system inherently provides you with loss guidelines through its exit points. And if you additionally use a 10% stop-loss (as a general rule of thumb, broadly speaking), then you should be sufficiently covered.
I know this may not sound entirely clear as to precisely how much loss to take. Perhaps the best notion to hang onto is the fact that if one stays on trend, follows the Ctabs buy/sell signals and has a stop-loss put in place to catch the big and sudden drop, trading success will improve which means there will be net gain.
If the markets are extremely volatile, then you will get caught in the volatility. However, trading an index such as QQQQ should make it less volatile relative to individual stocks.
Comments are for informational purpose only and do not constitute stock trading recommendations.
More you might like
Trading Gold Stocks in 2009
This article examines various elements of importance for trading gold stocks.
Paper Trading Preparation for Real Trading
This article covers the topic of paper trading as preparation for trading with real money. Failure in paper trading is a sign that the person should not partake in real trading. Success in paper trading does not necessarily mean a person will succeed in real trading.
Ranting on Stock Market Day Trading (March/2009)
This article covers my ranting on stock market day trading in the month of March/2009. Main lessons learned are listed to be remembered.
React to Technical Analysis Indicators to Trade the Rise and Drop in Stock Prices
This article examines the approach of trading stock price cycles as a means to achieve repeated trading profits in short-term trading. Take what the stock markets will give you.
Trading Research in Motion post Q1/2009
This article covers my observations on the trading of Research in Motion. With its huge rise leading up to and following the latest earnings announcement, where is the stock headed in the near term?