Stock market trading is no different. Stock market trading is not a place to lose money. Trading involves losses. Stock traders who are skilled in the art of trading don't try to minimize losses, but rather avoid them. Selling a stock could be done when its price is down by as much as 7-8%. It is difficult for investors to admit their mistakes and sell at a loss. A successful investor is one who can recognize a capital loss and sell stocks before they become unmanageable. Learn how to handle losses in the stock exchange is one of the most important lessons you can learn about investing.
Stock market losses can be either immediate and obvious or subtle and less obvious. They can be divided into three categories:
Capital loss - A capital loss is when an asset is sold for less than its purchase price. This is when you lose money by selling a stock at a price lower than the purchase price. Stock prices may fall and you might hold onto the stock, which could lead to further losses. Capital loss is when you actually lose money. You can divide it into short-term and long-term capital loss. Capital gains can also be used to offset the capital losses.
Chance loss - The difference between the optimal price and the actual price payoff. If you buy a stock at Rs 10,000 and it rises or stays the same over the year, you might think you haven't lost money. In reality, however, you are losing the chance to make more by investing Rs 10,000 elsewhere. The opportunity loss is a result of not choosing the best alternative.
Profit loss – Many investors cannot determine the top and bottom of a stock. Investors tend to hold onto shares that are rising, but cannot predict its fall. This is most common with volatile stocks that rise quickly before falling. Some investors hold on to their shares, hoping they will recover after the fall. But that might not always happen. This is why it's important to be content with a modest gain.
It is best to reduce losses in the stock exchange. To learn from losses and become more disciplined, successful traders take the lessons learned to improve their trading skills. Here are some steps to help you deal with losses on the stock market.
Take responsibility - Don't hide or run away from a loss. The first step to gaining control over your investments is taking ownership of your losses.
Keep the loss in perspective - A loss, no matter how large, cannot define you. There are more roles than your trade. Get back to the game by changing your perspective
Review your choices. - Look at the options and see if there are any improvements. Some traders wait for better opportunities, while others reverse trades in good market conditions. They not only compensate for losses but also work towards making gains.
Experience will show you how to make the right decisions. Learn from your losses what to do and not to do. Before you plunge again, make a detailed plan.
Get motivated. Use your loss to learn and develop your skills. Your weakness can be used as a springboard to help you improve.
After you have made a complete recovery from your losses, you can get back into the game. Trading is difficult without losing some money. However, smart investors know how to minimize losses and take the rightive actions.