Ouch ouch ouch!!! I took a short position at a pivot point the stock blew on through. No problem I double my position at the next pivot point once aging the stock blows through. Ok fine add to position at next point. You see where this is goingâ¦â¦.can you say big loss. This strategy had been working but when it did not work the loss was much grater than any previous gain. I hate it when must relearn the obviousâ¦.. as in never never never add to a losing position. I wish learning was not so dang expensive,
If it was not so damn expensive you would never learn. Shake it off and clear your head. If it bothers you a lot take off the rest of the week.
Unless you take the time now to evaluate what made you add to a position that was clearly not working out, then you have a very good chance of blowing out. Adding to a losing position is by far the absolute worst thing you can possibly do. The cost/benefit is very poor because you risk losing twice as much but your gain is halfed. It sounds to me like you didn't have a plan for the trade, otherwise your stop should have triggered. It is not that you admit to be wrong, but it is more important to figure out why.
Adding to a losing position is not necessarily a bad thing. It depends largely on the strategy you are running, and the time frame you are looking at. For instance, adding to a loser as a short term trading opporunity often works well. Not all traders can effectively trade their losing positions though. Good trading to you! Mike
Rule #1 Never add to a loser. Rule #2 You will break rule #1 until you lose a significant amount of money.
Who created those rules! Trading is far from being so black and white. Good trading requires you to be flexilble and have be able to manage losing positions. That is why they call it trading. Good trading to you! Mike
so true, isn't it...! Waste of time to "talk" about "why" he did it... a "kick in the teeth" is a better way to learn and process the situation! :eek: Like chasing inside straights with no odds.. do it enough and you learn. Actually, just thought of a good analogy from one of my favorite movies... Point Break. Keanu Reeves (as an FBI agent) is surfing a break and these wild-eyed dudes are pissed he's interfering with their action. They confront him and he says " I know, this is where you tell me how locals rule and yuppie maggots like me don't belong here (paraphrased)! They say: "no, that would be a waste of time... ", and begin to kick his butt!! (until Swayze comes to his rescue) Get it?! IcE
Steven Selengut recommends adding to losers to keep them up to 5% of a total portfolio. He does say only to add when stocks are 20% below 52 week highs. His site is http://www.sancoservices.com and his book is The Brainwashing of the American Investor. It is almost a contrarian approach these days.
otherguy, Your problem is you DID NOT KNOW it was a losing position NOT a natural position draw down then! (you knew it in a hindsight)until you can tell the diffs you will keep adding to a losing position. One not so clever way to solve the problem is NEVER add anything to a RED position but leave it to your stop. IMHO