Not every trade is going to make you money, its just a part of the game. It’s how you react to the loss that defines you as a trader.
There are two ways you can let this affect you. You can let it discourage you or you can take the hit and move on. It’s easier said than done when you’re down $1,000 or more (I’ve been there.)
When trading in the stock market you hopefully do your best to research a company and weigh the pros vs. the cons. Even if you do your homework the market can still surprise you.
When this surprise happens, and it will, you have to think about the long term. Say you lose $500 because of a companies bad earnings or poor future growth estimates. Are you going to wait until the company hopefully rebounds or are you going to get out there and look for another company to make you $500?
There are a couple ways you can make your money back when caught in a loss. If you believe in the company, which is probably why you got in in the first place, you can cost average.
Cost averaging is when you buy more shares of a company after it loses value. Say you bought a stock at $150 and it dropped to $115. If you buy around the same amount of shares at $115 your new break even won’t be at $150, it will be around $130.
This means that you will be able to break even sooner and move on. Be careful when doing this because there are cases when this will hurt you more than help. Lets look at Fitbit and Twitter for example.
These are examples of companies that cost averaging would have been a total train wreck. They continue to drop month after month with a turnaround nowhere in sight.
The second way to break even, assuming you didn’t put all your eggs in one basket, would be to find another company to invest in that can bring you back up to where you were before the loss.
If you are successful using this method I would drop the first company if they continue to decrease in value.
The main point I am trying to make is that you should not give up when the going gets tough. Risk is part of the stock market and always will be. If you can’t take the down times investing might not be for you.
The market can be a tricky game, but if you keep emotions aside and remain calm, you will have a better chance of coming out on top.