Rule of Thumb on How Much Loss to Take
I was presented with the following question from a visitor to Ctabs.
“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.
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