Today gave yet another example of why managing your risk in the market is so important. If you didn't manage your risk it could have been a tough day. If you did it could have been a great day.
Recently the stock market took a giant trouble. The fed decided to not pass the $700 billion dollar bailout that is something no one was expecting. It seemed to hurt most investors as the stock market made its biggest point loss ever.
This is just another reason why it is critical to manage your risk. If you had no stops in place you could have seen your long positions take the biggest beating you would have ever expected. That could have devastated your account just like it devastated millions of stock accounts.
However if you were only taking small positions with tight stops you would have gotten out of bad trades quickly. Your account would be fine, only suffering a small loss, but willing to come back.
George Washington makes a point when he says his famous line, “Living to Fight another Day.” Every time you place a trade you must ask yourself one question, “If I lose this trade can I come back?”
If the answer is no don’t take it. In Fact run away from it as fast as you can. I don’t care how much you believe a stock will go up if it will completely destroy your account if you are wrong, run. Remember when trading you should want to obtain long term success.
For everyone that was diversified into both long and short positions and cut their losses congratulations. Today did not have to be a bad day. If were cutting your losses short it could have been a great day.
Cutting your bullish trades short at only 2% to 3% losses could have worked in your favor. Especially considering many bearish stocks out there were taking 10% to 20% hits. Today was good for anyone that was diversified.
It was the day when one win on the short side could have paid off 4 to 5 small losses on the bullish side. Weather you found that out the good way or the bad way don’t forget the lesson, Cut your losses short and let your winners ride.
For more information about the stock market visit http://www.stocks-simplified.com
For more information about managing your risk visit http://www.stocks-simplified.com/portfolio_management.html
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