Cut your losses short and let your profits is a golden rule is that is vitally important to make money when trading shares.
John Sweeney wrote: â€œJust as it was tough when we were children to look under the bed or in a dark closet for night monsters so it is is equally tough to look at a loss and acknowledge it as a loss. It was easier to hide under the covers back then and now it is easier to adopt some defensive mechanism.â€
Getting out of a losing trade is vitally important if you want to make money as a share trader. Yet most people think that share trading success comes from choosing the right shares to trade and choosing the right price to buy at.
The truth however is that most successful shed traders credit their success as being much more dependent upon finding the right time to exit trades rather than finding the best entry.
To be successful at share trading you must become a master of exits and the best way to do that is to have in mind at what point in a trade are you going to exit the trade.
Your exit is either based on the profits that you’ve made or based upon the trading technique you are using or based upon your stop loss price being hit.
When you place a stop loss in the market you doing two very important things. First you are setting a maximum sum of money that you are prepared to to lose in a trade. In other words you managing risk.
The second important thing that you do is that you set the benchmark against which to measure your profits versus risk.
What you’re basically doing by using a stop loss is devising a strategy or plan to maximise profits and minimise losses.
This the key to successful share trading.
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