Every issue of Traders Daily Direction is about cashing in on stocks that are surging or about to surge in price.
But today, I’m giving you a primer on controlling losses when a stock goes wrong.
That is a big difference between me and so many gurus out there. Few to none ever talk or write about when things go wrong.
But I know that many stock trades have and will go wrong.
The big difference between a successful trader and a failed trader is knowing how to limit losses and having a game plan ahead of every trade.
Now, that said, I don’t want to be a “negative Nellie.” After all, yesterday – I presented three new surge stocks for the Watchlist.
And as of this writing, all three of the new surge stocks are trading in positive territory and then some.
Of course, each of the surge stocks inside Traders Daily Direction are vetted using the Stock Surge Indicator (SSI) system.
The SSI takes market trading data from thousands of stocks and identifies stocks with the top scores.
These are then further winnowed for the best stocks that we can present to you each and every week inside Traders Daily Direction.
For those of you that have recently joined us, I strongly recommend making sure that you are up to speed on my SSI system.
You don’t need to know the math or to do the calculations – but you do need to understand how it works and why.
This will empower you to be able to buy into the surge stocks with more confidence.
To get up to speed on my SSI – please download for free and read my special report: The Magic of the Stock Surge Indicator.
But even the best stocks can go wrong – so, read on as I go through how to control a loss.
Limiting Losses
I limit losses to 10% on any stock trade.
Not because I’m a chicken (although that may be true as well).
But because losses work against you geometrically.
10% is the mathematical “line in the sand” where a loss gets significantly harder to make back.
A 5% decline takes a gain of just 5.26% to get back to even.
If you suffer a 10% loss, you need an 11% gain to make it back.
Beyond that, the math starts to really work against you.
After a 30% loss, the trader will need a 42.8% win to recoup.
A 50% loss needs a 100% gain.
Read that again… A 50% loss needs a 100% GAIN to get back even.
See what I mean about larger losses working against you in a bigger way?
God forbid one suffers an 80% loss.
It takes a 400% winner just to get back where you started.
This math should reshape the way you look at taking losses.
The damage inflicted by a significant loss can be almost impossible to recover from.
Cap your losers at 10%. Let that be your maximum loss.
Will you get shaken out of a stock that ends up going higher? Probably.
Will you be forced to avoid some of the more volatile names that can’t be traded with a 10% stop? Absolutely.
Should you care? No.
You don’t need to trade every stock that makes the news.
You don’t need to be in on every move.
Wait for setups that have everything going for them – a clear uptrend, strong fundamentals and a low-risk entry point where you can place a stop within 10%.
That’s where the math works in your favor. That’s where you have an edge.
And that’s what I work to provide you with for each of the stocks on my Watchlist.
