You can be right about the trend, but if you are wrong about the entry point and don't know how to cut your losses, you will still lose heavily.
Cutting your losses isn’t accepting defeat, it’s protecting yourself from a bigger disaster. Here’s why every investor should follow this rule, no matter how painful it is:
1. Protect your account – Keep fighting for a long time
A 6% loss can be recovered, but if you lose 20% or 50%, you will need double or triple the profit to get back to where you started. Don't let your account evaporate just because you "don't have the heart to cut your losses".
2. Eliminate the feeling of blind hope
When the market goes against your plan, the hope that the price will “turn around” is just an illusion. Cutloss helps you get out of a bad position before panic takes over.
3. Prevent market revenge psychology
The deeper the hole, the more likely you are to fall into the trap of “recovering”. But instead of finding new opportunities, you are just sinking deeper into the mistake. Cutloss helps you avoid this spiral of failure.
4. Build Discipline – The Most Powerful Weapon in Trading
Traders can win or lose on each trade, but discipline is what helps you survive in this harsh market. Once you ignore the cutloss rule, you will easily ignore it a second time and then lose the whole plan.
Cutting your losses is something no one wants to do, but if you want to survive and succeed, you have to do it. The market doesn't care if you're right or wrong, but it will always reward those who are disciplined enough to know when to stop.
“A losing trade can be a lesson. But losing an entire account because of stubbornness will be the end.”