Your Trade Show

I thought that title might get your attention if you're interested in the stock market. What kind of scam am I promoting here? Is it really possible to trade stocks on a regular basis and never place a losing trade? The simple answer is, "It all depends on your frame of mind about what a loss is."

You see, if you aspire to make a living from trading stocks, you can never place a trade without first knowing what will have to happen to prove your decision was wrong. Once you have that fimly planted in your mind, you can place the trade. If your predetermined (negative) occurrence presents itself, you sell. Notice that I didn't say, "you take the loss." Why? Because it is not a loss. It is merely an occurrence that not only frees up your capital to place any other trades that present themselves, but it is also a reference to look back on to point the way for the next trading opportunity.

Now, let's say you placed that same trade without first considering that it might move the wrong way. You buy the stock and it immediately goes against you. What do you do? If you're like many beginning traders, you sit there with that 'deer in the headlights' look thinking things like, "I can't sell now...no way am I going to take a $200 loss in 5 minutes." You know the feeling. Then, it goes lower and you start rationalizing to yourself, thinking things like, "I'll just hold it for a couple of days until it comes back." Meanwhile, other opportunities go by because you're either too scared to make another bad trade or you've tied up the bulk of your trading capital on that earlier trade and can't make any other trades until it 'comes back'.

What you don't realize is that since you bought that stock right at a point where it should have rocketed (according to your chart reading skills) but didn't, the bears now control this stock....at least for the short term. Why? Well, everyone that was looking for the same breakout that you anticipated is disappointed. One by one, according to their different personal tolerance to pain, they bail out until the newest traders of the bunch start thinking the stock is never coming back. You finally decide to try and salvage what you can from this horrible trade and you sell (now at a $1500 loss instead of the original $200)....only to watch the stock start to climb back up shortly thereafter. Why is it climbing now? Well, experienced traders waited for the selloff to end before climbing back into this stock to enjoy a nice run. Now that is a losing trade.

Furthermore, the psychological damage that occurs from this failure to take the original (and now seemingly trivial) loss can be exacerbated by your desperation to try and recover from that loss immediately. You may now be tempted to buy any stock that looks like it's running only to catch another top. You can see how failure to sell when you first realize that the trade isn't going your way can literally lead to destroying your trading career before you ever had a chance to get rolling.

The main point I want you to understand here is that a loss is not always a loss. If done properly (and planned out before ever placing a trade), selling a stock for less than you bought it for can be a win if you use it as a reference for future trades. It can be a beacon, if you will, that points the way to better trades in the future.

Michael Spector is the founder and president of GreatStockPix.Com. His main goal is to help traders start every market day armed with intelligent stock picks and proper techniques on trading them to help them pull money out of the market everyday. The website can be found at http://www.greatstockpix.com