If you are system trading stocks with your own trading system you no doubt are very familiar with the phrase, “cut your losses but let your winners run”. Rarely will you get an argument that this is what you MUST do to stay profitable day trading, swing trading or position trading.

Every Wall Street survivor has assumed the role as his own personal hedge fund stock system manager and is doing something right as it relates to managing inevitable losses against hoped for gains.. It’s the casualties in stock trading or any so called system trading that, upon position entry, fail to set an inviolate stop loss, afraid to take a small loss to avoid a bigger disaster. Whether you are trading stocks, crude oil or options picks you must be almost 100% mechanical in controlling your losses.

The losses I am talking about controlling are measured in dollars (or some currency) and the concept is not a next generation trading system. There is though another metric of loss, another unit if you will, that most people never factor into their decision bar. That measure of unit is TIME.

Let’s say Mr. Michael Market, like many other people, has a stock portfolio that has grown over the years to $378,000. Mike, like many others, is of the buy and hold invest for the long term persuasion. To this point in Mike’s life even with the ups and downs of the market his portfolio has shown steady improvement.

What Mike hasn’t experienced yet and doesn’t realize is that a dramatic drop in his portfolio of 40%, 50% even 60% can devastate him in two ways. Loosing nearly $190,000 is certainly depressing enough but TIME may be his biggest loss.

A $190,000 portfolio value may represent an account balance as of twelve years ago. Additionally, who knows if Mike will ever make up the dollar loss in the years ahead and the years ahead are a big unknown in terms of just how many there will be.

The point that I would like to emphasize is that out investing lives are shorter, sometimes very much shorter, than our natural lives. A loss in the metric of time multiples the loss measured in the metric of dollars. We want to minimize both but only have control over one.

What this means is that the element of time should play a much greater importance in one’s overall investment process but most of us have not been taught to apply this form of analysis. Now that you have been enlightened I am sure that you are very much more inclined to perform and apply this type of anlysis in your own personal investing life.

Whether you are investing, day trading, system trading or seeking options success you must have and faithfully execute a disciplined loss minimization regimen. Over time the pain of experiencing small losses will decrease and perhaps even be eliminated knowing that you have avoided the one loss from which you will never recover.

Author Bio: C.C. Collins is a respected financial strategist, market timing expert and CEO of BeMarketSmart.com. Readers may avail themselves of a Free Trial of the author’s ETF TrendRider market timing signal service.

Category: Finances
Keywords: universal trading,trend market,trend analysis,sector trade,trading strategies that work,