The above scenario is based on worst case when a stock was purchased at the highest point 0f $0.39
where it started to trade to the downside. This illustration is subjective to interpretation, it takes
guts and years of trading skills to perform the recovery, you are not to average down as the stock
price goes lower which is what most unskilled traders will do.
In fact, the best loss is the initial cut loss level that you have set before you enter the market to
buy.
But If you have overlooked or assumed that you just need to "buy and forget" then you will be
very sorry soon.
IN order to reduce the losses, there are steps to be taken to make sure that recovery is possible, you
need to identify that the stock is longer going lower and started to move sideway, as the stock starts
to move up the trend, you make the 1st recovery purchased as shown on 9th April when you see a
bullish Green bar (almost closed near day high), the quantity to buy has to be 3 times higher than the
initial lots size. Subsequently, as the price move higher, execute the 2nd recovery purchased as shown
on 6th May at $0.26 with 3 times higher than the initial lots size.
By averaging up the price, you will have a positive outcome as shown below.
Base on my study, with this strategy, you can reduce the losses significantly and provided you have
the guts, capital and trading skills to recover a losing stock over a period of time.
Personally, initial cut loss is the best loss... and I always traded small lots size in the initial entry.
The highest risk is always the initial entry where you do not know where the stock will be heading
even after extensive study of the financial ratios and charting. The market will do what its need to do
and we have no control over it. What we can do is to limit our losses with trading plan.
so if I am wrong in my initial entry, I can still exit with small losses quickly, but if I am right on the
entry, the next buy will be heavy when the price moves higher above the breakeven level and I
will keep on adding more positions up the trend. With averaging in an uptrend, my average per share is
still lower than the market price.
In this way, there is no fear to buy high price and hope for higher price as the stock continue to
rise until it triggers the profit protect line to exit the trade.
Take example of the current holding of SIA stock.
Refer to the below post on how to start small and finish well..
Start Small and Finish WellOther ways to recover losses in a trade.
1) If there is stock call or put option (warrants) to buy as a protection insurance.
2) Trade another stock which is trending up or down. Trade in the direction of trend to generate
profits to cover the losses from the losing trade.
3) To apply what I have shared in this blog, average up when the stock starts to recover.
You are the master of your own habits and trading techniques, find your own way to resolve the situation back to health.
Don't sit on it.
You will be better off doing something with small and calculated steps towards recovering from losses.
Happy Profitable Trading 2020
Welcome 2021 with massive action.
