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OKIt's time to talk capital preservation.

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lowtrade Member Level  Tuesday, 02/09/10 11:14:38 PM
Re: louisa post# 14337
Post # of 45543 
OK

It's time to talk capital preservation.

When NOT selling at a planed exceptable loss figure. You can easily become what is known as a bagholder. Your at a 50% loss or more. That's when to concider a get even plan.

First you have to mentally write off the total value of the trade. Or take the large loss ASAP. Because if your swing trade became a long hold mentally, you aready wrote it off in your mind as dead money. Which you will not touch until it corrects to a break even or new exceptable loss point, in the far future.

It's dead money!

Now that I have all the mind options out. Let's work on a come back plan. When a stock increases it produces larger gains then the losses on the way down. MATH!

So if you let your total investment sit, you are not increasing your returns, on any reversal. If you run the number and choose a precentage your comfortable with, you can make back what was lost faster. Sell 25% or 50% or 75% Run the numbers and pick a plan.

EX:

$1k in a $1.00 stock for 1000 shares.
The price falls to 50 cents for a 50% loss.

Sell half and hold 500 shares at 50 cents and $250 cash.
Say a reversal comes @ .25, buy back low with the cash taken out, $250.

Now you hold 500 share @ .50 and 1000 @ .25. It runs to .50 and you hold 500 @ .50 down (50% still) and 1000 @ .50 for a $250 double or $500. Your total of $750 if sold. $250 + $500 Is a 25% loss OK? sell all. Many times I'd sell have here.

You don't sell
If it continues up to .75 now you hold 500 @ .75 and 1000 @ .75
for $375 + $750 = $1,125 or a $125 profit.

And the price hasn't event reached you $1.00 break even, if you held from your 50% original loss.

By selling and holding cash to reinvest you can re-coop your loss faster!!! Or reach a new exceptable loss figure sooner.

Food for thought.


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