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No, I Will Not Add to This Loser

I received a well-meaning question from one of our clients today regarding an open position.

This client missed getting into the trade a couple of months ago.

Paraphrasing her question, she asked, “Since the stock is still above your stop loss level, would it make sense to buy the dip here, and/or would you add to your position here?”

Again, it’s a well-meaning question – one I’m sure we all often wrestle with.

The problem, however, is that the position isn’t acting well. It’s a longer-term trade for us and still has a ways to go until options expiration, but the stock is currently trading well below the level at which we first got in.

In the chart below, you can see where we entered at the purple circle:

Our current stop level is represented by the horizontal black line. We’re getting close to it. The trade currently isn’t working for us, but hasn’t yet triggered our exit.

Would I add to my position here?

For me, the answer is no. I know some smartypants out there will say: “If you liked it at 97, you should LOVE it at 89.” Those same smartypants are also usually terrible net-losing traders.

I’m not in the business of throwing good money after bad. I’ve done it in the past, and it rarely worked out for me. Instead, it just turned small losses into bigger losses. That’s neither good for my pocketbook nor my head.

I’ve got a plan for this trade and I’m sticking to it. Wasting mental energy and dealing with the additional stress of attempting to “repair” a trade by throwing more money at it is no way to make my life easier.

Trades often don’t work out. In fact, more than 60% of my trades end up being losers. That’s OK, as long as they are SMALL losers. Adding additional capital to losing trades risks turning small losses into far bigger losses. That math doesn’t work for me, and it likely doesn’t work for you.

Instead of trying to earn my money back in a trade that isn’t working, I’d rather look for fresh opportunities in better setups that offer me better odds of success.

That’s a recipe for winning.

Trade ’em Well,

Sean McLaughlin
Chief Options Strategist
All Star Charts, Technical Analysis Research

The post No, I Will Not Add to This Loser appeared first on All Star Charts.

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