It goes without saying that loss cutting is a very important component of becoming a profitable penny stocks trader. I wanted to share the following figure below because it really shows why this is the case.
The first thing you will notice is that a small loss is quite easy to recover from, but as the size of the loss increases, the amount needed to make yourself whole grows exponentially. This is why bag holding is so detrimental. If you’ve been involved in trading then you probably have had a trade go against you. If you have learned to be disciplined and cut your losses quickly, then you probably have had some success.
If you are like most people and haven’t figured out how to control your own psychology, then your trading success might not be where you would have hoped. A lot of new and unprofitable traders, are underestimating the importance of risk management. It’s not that you can’t hold on to a loser, and eventually have it turn into a winner, but rather the unnecessary risks that are involved in doing this. Maybe a stock will come back and allow you to get your money back for a breakeven trade, but in the event that it does not, you could end up losing everything. This could destroy weeks, months or even years of profits in a short period of time.
This is a situation that a trader should NEVER put themselves in. Stubbornness and lack of discipline will kill you in trading. Successful traders have put their ego outside and realize that they can’t be right all the time. The market is smarter than nearly every person on earth and we only can focus on controlling our own selves. If you have struggled with this sort of thing you are not alone, but please understand there are techniques to help you get over the hurdle. I have shared the techniques that have worked for me here. Having a solid foundation before you take make your next move is a really important step so I highly suggest you try it out and see how much it will benefit you
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