Before I became a professional trader, I was a martial artist. In any kind of martial art, before you ever learn how to hit your opponent, you must learn how to prevent opponents’ attacks from killing you. This is the same in the investment world. Before you learn how to win big in the market, you must learn how to cut loss. If you want to become a professional trader that is able to earn a steady passion income, you must stick to a investment plans and a reasonable cut off point.
I always like the analogy of keeping a garden. The beautiful plants you deliberately plant are always accompanied by weeds. It is very natural. If you are disciplined enough to care for them everyday, you can clear them very easily because they are just baby weeds. And your plants will not be adversely affected.
However, if you ignore these weed and let them grow, they will become more difficult to be removed. Then the time you spend on them makes you shift your focus from other fruitful plants to the weeds and hence further decreases the productivity of the time spend on getting rid of weeds. Even worse, the big weeds can destroy your garden.
Losses in investment accounts must be treated like weeds. They must be dealt with when they are still small. Then your account will always stay healthy and growing.
Loss is just another expense in investment trading. They happen, so you have to face them with ease. Just like the weeds in your garden, when the losses are small, they are easier to be removed. But when losses grow like weeds with big roots, it will become really difficult cleaning them.
Successful investors will not share with you how exciting it is to cut loss because it isn’t. It is just needed to be done. But losers will tell you how they broke due to one or two big losses.
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