"Those who cut their losses at 7% had the capital to get back in the game later.
On the other hand, investors who stubbornly stick with a stock, ignoring the sell signals it flashes as it falls, often see their investment evaporate.
Say you have $1,000 to invest. If you make three bad investments in a row, but cut your losses at 7% each time, you're left with $804.35 in your portfolio. If the next stock you jump into scores a 25% gain, you're back above the $1,000 mark.
But if you stay in a stock as it tanks, your portfolio will dry up in a hurry.
Knowing when to bow out is a big part of what separates good traders from poor traders. A good trader realizes he's made a mistake, gets out and learns from his mistake. A bad trader blindly holds on.
Cutting losses at 7% is particularly important in today's market. Some stocks have fared well, but others have broken down. Buying a stock that's extended from its base, or one that has formed a faulty base, can lead to problems. Getting into such stocks in the first place is a bad idea. And you'll only compound the problem by hanging on as it crumbles.
You'll also damage your confidence. Letting a big loss pile up can make you gun-shy the next time a leading stock breaks out. You could then miss out on big gains."
News 
Market Data 
Discover 
AI
