This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Ten Commandments of Trading:  1  |  2  |  3  |  4  |  5  |  6  |  7  |  8  |  9  |  10 

 

 

Control Your Losses

 

 

Commandment 7

Losses do you in. They always do you in. Controlling losses is the most important thing you can do. I don't really care how you do it. If it is to put on stops in trading, then so be it. If it is to decide that you are never going to let a position run a point against you, then fine. But you must heed the seventh of my 10 Commandments of Trading:

 

Control losses; winners take care of themselves.

 

Let's say you bought Apple (AAPL) for a trade. As soon as that number comes out, that's the trade, for better or for worse. If you own it the next day, you are making an investment, and you didn't buy it for an investment. The loss must be taken.

It's the same if you buy IBM (IBM) today because you think it is down too much. You have to stop yourself out at $79, or else that, too, becomes an investment, and an investment by default is a very vulnerable place.

What's amazing about loss control is that it works in every season. Loss control would have saved you a fortune back in 2000. Loss control would have gotten you out of pharma much higher, only to get in now, when pharma's finally right.

The only time loss control doesn't work is when you are picking a position as an investment to start. Then you are rooting for the market and the stock to go down, so you can buy it right. Loss control there means that you don't buy too much at one level so that you don't find yourself under water big and then helpless as the stock rallies because you didn't buy any stock at lower levels to trade around with.

When I review portfolios, I constantly see those that are rocked by one position. In other words, someone let one bad position go against them and go against them and go against them some more. That's because the person didn't recognize that you must be an activist about your losses; you must recognize them, remove them, contain them.

If you do, you will be shocked at how often the good positions will make you fortunes that don't get taken away.

 

To return to "360 Degrees," click here.

 

 

 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 16,399.67 +19.26 0.12%
S&P 500 1,904.01 +17.25 0.91%
NASDAQ 4,316.0740 +57.6360 1.35%

Brokerage Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters