Maybe some of you have also experienced something like this? The question is: “Why did the shares get stuck?” The answer is simple: “Trader when buying does not set a cut loss limit at all, and only sets a take profit limit”. So, the keywords in this post are: CUT LOSS.
Cut loss is the biggest problem for traders, because cut loss is a tough thing. How not heavy, cut loss means you have to be willing to lose. Logically, where would anyone want to lose? That is why many traders do not want to cut losses.
Two assumptions that cut loss is not important because: First, if the stock is not sold, then our money will not be lost. You are right. Shares are proof of ownership. As long as you do not sell the shares, the ownership and capital you invest will remain in your hands. Second, if I have cut loss, then the price turns up instead, so I’m sorry I did a cut loss.
“Does that mean there’s no need for a cut loss, sir?”
I replied: “Necessary”. Even you have to be disciplined for that. I will argue the 2 main notions that cut loss is not important.
The first assumption is that if the shares are not sold, then my money will not be lost. However, even if your money is not lost, you still cannot carry out trading activities. If the stock price is stuck and the current price is IDR 50, then you can’t do anything, you can’t even sell it. Means the same: have ownership of 100 million, but can not be played (for trading). So, yes, your funds are stuck. If you have a need and want to take your Rp 100 million, you certainly can’t disburse it.
The second assumption is that if I have cut loss, then the price turns up instead, then I’m sorry I did a cut loss. However, are you willing to bet that the price will reverse up? There have been many traders who have risked not to cut losses, the price just keeps falling and never comes back. Many traders whose trading careers are ruined because too many of their shares are stuck, and can’t sell or are desperate to sell, so their funds run out immediately, so they stop trading. I will give some examples of falling stocks, which traders often get involved in: APOL, BUMI, BKSL, TRAM, BWPT, HRUM.
Remember, cut loss is also part of the analysis. In addition to analysis, cut loss also concerns trading psychology.
Then you ask again: “So what if I cut a loss, the price turns up instead?”
With a cut loss at least you did the RIGHT thing. If you want to cover your losses, please you can buy the stock again at a lower price, when the price has dropped, and sell at a high price (buy low, sell high). With a cut loss, at least you don’t need to gamble, by guessing whether the price will go up again. The proof is that there are many traders whose shares are stuck because they do not cut losses at all, and this greatly affects the trading activities of traders. Their portfolio ended up being filled with stuck stocks, which was not planned in advance.
You ask again: “Sir, what if I do cut loss continuously?”
If you continue to cut losses, it means that something is wrong with your trading system. Please change your system, or sharpen your technical analysis again.
So, with my explanation above, do you still think not to be disciplined to cut loss? Determining the cut loss limit is very subjective. There is no formula. Cut loss can be determined by pulling a support point, a strong support from a stock. Determining the cut loss at what price, of course, must also be adjusted to the characteristics of each stock. So, everything requires flying hours and processes, if you want to become a reliable trader. so that you can generate maximum profit.