How To Break Up With A Stock
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One of the hard facts of choosing trading as a career is the inevitability of heartbreak. Sooner or later the day will come when we must make the hard decision to break up with a stock that we held for way too long. This can be a painful moment because our love affair for stocks sometimes rivals that of real relationships. I mean the right stock can make you all giddy inside like you are getting your first kiss on the school bleachers but the wrong stock can be emotionally and financially demoralizing like a Johnny Carson divorce.
Lets take a look at three emotional triggers that cause us to stay in trades when we know we shouldn’t.
Emotions -We are very emotional creatures by nature and we don’t like to give up on things we worked so hard to get or things we believe in. Our brains cant stand to feel “shafted” or treated unfairly. When we feel shafted often times our fist response is to get emotional. No matter who you are it sucks to work so hard searching through hundreds of stocks to trade, narrowing it down to 5 possible candidates, finally settling on one to pull the trigger on and then that stock turns out to be the biggest piece of trash stock in the history of trash stocks. Its even worse when the other 4 you kicked to the curb turn out to be great calls that were passed on. This makes it difficult to accept a loss or admit to being wrong because the need to be right is also in our nature . This also can be magnified if you are naturally stubborn, vindictive or a temperamental person. Remember there is no self entitlement in trading and pro traders do not get emotional
Hope– This often starts after you subconsciously know that you have allowed a trade to go against you more than you originally planned. I cant fully explain it in words but there is always a moment when you just knew things were turning bad and they were not going to get better but chose to turn a blind eye to the reality. You have broken all rules you set for yourself and every logical reason that made you initially enter this trade is gone but yet you are still clinging on to it You begin to search for any excuse you can find to stay in the trade. You may find yourself searching through social media like twitter or stock twits to see what the “community” has to say about your stock. However, you are not really looking for the “community” opinion you are looking for people who agree with you. This is a mechanism you use to justify staying in a bad trade or when the situation is so uncomfortable that you feel you need an outside opinion. Sort of like a partner in crime because it will make you feel better that if you perish in hell over this trade your anonymous social media buddy is right there burning with you
Denial– This is the part where you stopped feeling uncomfortable about your decision and just chose to ignore it. After all its not a loss until you sell it right? At this point you have run out of emotions and excuses and you are just tying up this dead money in the hopes that sometime before you retire you might get your money back. This is the ultimate form of ignorance and stubbornness because you have absolutely no plan and no more reasoning so rather than own up to the loss you just stop paying attention. Trust me on this, as reluctant as you are to ditch the stock you must leave it because once its off your book its like major weight lifted of your shoulders and you can now focus on a much higher probability winner.
Trading is a unique career and one of the few where you see the fruits or the consequences of your decisions almost immediately. Because there are constant changes in the market place we cant afford to get hung up on one trade. You cant afford to get emotional, angry, irrational or hung up on trades as this may lead to you missing out on other opportunities . No matter how much preparation and effort you put in to each trade certain things will happen that our out of your control.What is in your control though is how much loss you take. The faster you accept the reality and cut ties with the loser the closer you’ll be to the next winner. One key difference that separates the wannabes from the winners is winning traders know how to quickly recognize when a situation has turned sour on them and get out.
Remember the quicker you are at accepting the loss the better off you will be. You should never get married to a trade or emotionally fall in love with a company because it will ultimately cloud your judgement. And believe me if things turn sour the company you love so much and gave so many chances to will not send you a check for your losses. Sometimes breaking up is the right thing to do and who knows maybe you can get back together in the futures for a “make up trade” those are the best
You might enjoy these other posts
5 Things Nobody Will Tell You About Trading
12 Rules Every Trader Must Learn
The Power Of Powerful Preparation
How To Successfully Buy A Terrible Stock
5 Of The Wealthiest Trades In The World
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