Weekly Motivation

Why most traders do not cut losses?

It is unofficially ranked as the most important trading rule, and one of the biggest mistakes that traders make is to not cut a loss. This problem is often compounded by committing a great deal of money (if not close to the entire trading capital) into the trade initially.

To the defence of all those who have at one stage or another not cut a loss, it is a perfectly natural thing to do. Deep down, the last thing a person wants to do is consciously make a decision to lose money when there is a chance that you won’t have to lose the money at all.

There is often a touch of excitement and optimism when traders begin trading and the thought of cutting a loss does not complement the prevailing emotions in a person and therefore it is the last thing that people want to do. Furthermore, the main reason why people trade (whether right or wrong) is for money.

People trade because they believe there is a chance that they could realise more money than they could have ever dreamt of. In the eyes of a beginner, obviously cutting a loss does not support the aim of making lots of money because it is realising a loss of money, and denying yourself the chance of breaking even in the trade.