"The elements of good trading are: 1) cutting losses, 2) cutting losses, and 3) cutting losses.
If you can follow these three rules, you may have a chance.
"Ed Seykota When you lose money investing in the stock market, you end up with less capital to work with.
As a result, to make back what you lost, you have to earn a substantially higher percent return than what you lost.
For example, if you lose 20% of your account value you must subsequently show a return of 30% to make up for the loss (said another way-you have to generate a return that is fifty percent greater than the 20% you lost just to break even) It is not as easy (and it usually takes a lot longer) to gain it back as it is to lose it in the first place.
Even if your investing skills improve, you are still behind the eight ball-so to speak-both from a portfolio value and psychological perspective.
You will be be better off in the long run if you look closely at the risks you are willing to take-and the losses you are willing to suffer-to make huge gains.
Trading and/or investing means more than just shooting for the stars every time you enter a position.
What better way to minimize your risk when entering a position than to determine right away (at the moment of entry) the exact amount you are willing to risk regardless of what happens thereafter? You can accomplish this by purchasing corresponding put option any time you buy shares of stock.
Doing so creates an insurance policy, in effect, for a period of time, protecting your share purchase from losing more than the predetermined amount.
It's a prudent way to invest in volatile and unpredictable times.