When Is the Right Time to Cut Your Losses?
I’m addressing a major topic today, gang…
It’s a really big deal:
Learning to cut your losses quickly. You must learn how to do this.
If you don’t know how to do it, just ONE mistake could seriously damage your confidence — not to mention the balance of your trading account.
And since every trade won’t be a winner, you need to be prepared for this right from the start.
For that reason, I prepared this multi-day issue to show you exactly how I cut losses on my trades.
After 20+ years trading stocks, I’ve found this is truly one of the most important things you need to know about trading, so I hope you can learn from me here.
I want you to know that this is MANDATORY for all of my students, so make sure you read the rest of this multi-day issue for tips that can help you build the foundation of your trading career.
What Is the Meaning of “Cut Your Losses Quickly”?
A lot of people ask me, “Tim, what does it mean to cut stock losses? How do you know when to exit a trade?”
Both questions are very important and point back to my number-one rule in stock trading…
My answer: “I cut stock losses quickly. Period.” I live and die by this rule.
But what are the reasons behind it?
Well, first and foremost, let’s look at the origin of cutting your losses. It traces back to the foundation of any good trading plan: Exit a losing position before things can get worse. It’s a way to control your losses when things don’t go the way you’ve planned them.
There are also other factors I consider to determine exactly when to exit a trade, like the timing and the pattern behavior. But overall, I cut my losses quickly — and you’ll soon see why.
Why ‘Cut Your Losses Quickly’ Is My First Rule
Cutting losses quickly is of paramount importance because I want to keep trading with confidence and protect my trading capital.
I don’t want small mistakes to turn into a bigger disaster for whatever reason. I’m not interested in taking that risk!
I’ve seen newbies freeze in panic, losing more money by the minute, without knowing exactly what to do. And a big loss doesn’t just wreck your confidence, but it can also take a serious chunk out of your account.
Education is key in helping you here. I’ve learned these trading patterns inside and out and know their behavior very well. If a stock doesn’t do what I think, I’m out, and sometimes just for small gains.
My motto: Trade scared and cut losses fast. When in doubt, get out!
Trade scared? Yes!
As wonky as that might sound, it can ultimately help you. You see, for me, trading scared actually makes me NOT scared to trade — instead, it helps me stay calm and ready to take the potential rewards on my next position.
Now let’s talk about how it can help you…
When to Cut Stock Losses?
When you take a trading position with a solid plan, you have a more vivid picture of what the stock might do.
So, if you’re following a pattern that’s not working, the best thing you can do is exit your position.
Many times a pattern will turn against you and you’ll have to take a loss — but you don’t have to wait for a trade to become a loss to exit it.
As I mentioned, I even get out for small gains. There’s no shame in small gains; it beats a loss any day! If a pattern isn’t working for you, I strongly encourage you to get out with small- or medium-size gains too,
I want to give stocks as long as they can, but at the same time, if the stock isn’t doing what I want, I cut it. This helps keep me in control.
For example, if I’m buying a stock for a morning spike — let’s say it’s a crypto stock — and they just announced some new crypto company, theoretically, it should be spiking right away because that’s the hottest pattern right now…
But what if it doesn’t spike or if it stops spiking?
I’m out. No matter if it’s already up 20% and I’m buying it, I’m out. I don’t care if I make five cents or lose five cents per share. I don’t care if I make $100 or lose $200. If the stock doesn’t do what I want, I’m out. Period.
Or let’s say I’m shorting a stock and it’s the first red day. I’m expecting a morning panic the next day, and there’s no panic. And say the company issued a press release overnight to try to pump themselves up and squeeze shorts and the stock starts going up …
What do I do? I’m out. I cut losses quickly. For me, it’s not just about the gain or the loss — it’s about following my plan and being consistent with my execution. This builds my confidence and strengthens my mindset; just more great reasons why I cut losses quickly.
In any case, you’ve gotta know the patterns. That’s why I always tell you to study hard, recognize all these patterns, learn from my 5,000+ video lessons, etc.
If you keep studying and dedicate yourself to this, you can potentially become an expert at these patterns just like I am.
And once you become an expert, you don’t have to wait for a trade to become a loss to exit it… you’ll know exactly what to do.
I’m not finished yet…
I’ve got eight key tips lined up to share with you tomorrow on what you should look for to decide whether it’s time to cut your losses.
Hang tight and check back tomorrow.
— Tim Sykes
Editor, Penny Stock Millionaires