I joined StockTwits three years ago. One of the biggest benefits I get from its platform is idea generation. In return, I like to share ideas to help my followers create a decent watch list of growth stocks. Here’s the problem: Like it or not, many of the bloggers on the network have picked up a strong following. Some of the followers are so loyal that they are greatly influenced and sometimes “blindly” follow traders on the stream.
This is where my biggest challenge comes in: The majority of traders struggle with taking losses. Some of them don’t take losses at all and justify it by saying: “Oh, I’m not worried, the stock will come back.” My challenge is that I would love to share more of the ideas that I have strong conviction in; however, I don’t feel comfortable that 1) some people will blindly follow the trade 2) do NO research to make sure the stock fits their investment criteria and 3) not take a loss when the trade turns against them.
Here’s an example. A while back I said I liked a stock at $30, my target was $40, and my stop was $28. I absolutely loved this stock. I happened to be wrong (which I often am) and took a $2 loss, no big deal. Afterwards, I was shocked by how many people tweeted and emailed me saying they got into the stock, but they weren’t going to take a loss. The stock eventually drifted MUCH lower and the same people emailed me along the way down: “What do you think now?” or “What should I do?”…”What should you do???” You should have got out a long time ago, that’s what you should do!!! I’m not saying that people have to trade EXACTLY the way I do, but you still have to have SOME loss cutting policy!
Protecting the downside is so important to me because I have studied some of the best traders throughout history and they ALL have the same number one rule: CUT YOUR LOSSES! Some of the sharper traders I know on the stream automatically cut losses, and I respect them tremendously for that. Unfortunately, the majority of amateur traders don’t do this. They hesitate, over-think things, fail to make a decision, and let losses drag down or even ruin their portfolio.
To trade successfully over the long term involves an INSANE amount of discipline, risk management and decision making…and these are qualities that the majority of traders and investors do not possess, but they can be learned with hard work! Trust me, I struggled with this discipline for the first 12 years of my trading before I finally smartened up, got my act together, and began to respect risk.