You buy a stock, for whatever reason. Then it starts to trade lower & lower, you're now not sure if you should exit or not. Herein we're not discussing whether the buy decision was "good or bad", the assumption is that you did your "homework".
You have two options, exit or keep the position. We don't recommend changing from being a Trader to being a (Value) Investor at this point.
Exit:
You take the loss, hopefully a small loss ( <2% of your total portfolio, position sizing) and move on with your life. You could be wrong & the market start to reverse, but heck you'll sleep better from now on. And your account will recover quicker.
Stay:
The market continue to fall, that -10% is now -35%. You don't want to exit now because the loss is bigger. You stay, down -10% more! You can no longer handle the "loss" emotionally, and at the back there's an amateur who keep on saying "you only lose when you sell".
One day you emotions will be too strong for you, and you'll be forced to exit at a HUGE loss.
See, there's no point sticking with a losing position.
It may not recover.
Even if it recovers, it'll take time. During that time you'd have missed lots of opportunities because your capital was tied in a losing position.
Take home message:
Pre-determine your exit levels, both wins & losses. Plan ahead.
Exit when the exit level is hit, don't think it twice. You can turn a winner into a loss, you can turn a small loss into a large loss.
You don't have to be right, or try to prove that you're right & the market is wrong. There's only one side of the market, the right side. You're there to make money not to stroke your ego
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