I hate losses in stocks so I don't have stop-loss; but that HATE doesn't prevent me from cutting losses in stocks. Painfully, I did it a few times! Bo pian.
Stop loss is when you pre-determine your own exit price to take the loss and walk away. It is just one of those bad trades and it is not that painful as the loss tends to be smaller.
Cut loss is different from Stop Loss. Cut loss is when you felt so hopeless at the falling stock price and it has reached your threshold of pain. You bite your finger and sell it and move to the sideline for a while. Cut loss is usually bigger and more painful.
Read? More posts related to stop losses
When to cut losses?
When you still have some fund left to invest in other stocks; your opportunity cost for staying in paper losses is actually very low i.e. you are just missing out the saving rate of less than 1% in the bank.
But, when you run OUT of cash to invest; then it has become a different story. Your opportunity cost are now costly as you are potentially missing out some promising stocks in the market that can help you to make a meaningful recovery in your portfolio.
No Money. No New Stocks.
No New Stocks. No Chance for Recovery.
How to change Horse?
Only when you have spotted a potential promising horse (oops, don't be wrong again) that may help you to recover faster; then you cut losses. This is Change Horse strategy. You can't expect your dying horse to suddenly wake up and start running. When you switch horse, you have to ensure that the quantity of shares remain the same or more; otherwise the rate of recovery will be slower.
For example, you are cutting losses on 10,000 shares of HW; then you have to switch to a better horse of 10,000 or more to retain the rate of recovery with the new horse. Get it?
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