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How to Take a Loss - How to Take a Loss Brett N Steenbarger...

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How to Take a Loss Brett N. Steenbarger, Ph.D. www.brettsteenbarger.com There are quite a few books written on how to make money in the market. Some of them are even written by people who have made money as traders! What you don’t see often, however, are books or articles written on how to lose money. “Cut your losers and let your winners run” is commonsensical advice, but how do you determine when a position is a loser? Interestingly, most traders I have seen don’t formulate an answer to this question when they put on a position. They focus on the entry, but then don’t have a clear sense of exit—especially if that exit is going to put them into the red. One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxious—in short, it interferes with their future decision- making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable. A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore’s approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue.
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