In the trading market, we often encounter situations where our positions are incurring losses. How would you handle this?

Would you choose to continue holding and wait for the price to return to your entry cost before selling? Or would you immediately execute a stop loss?

Let's think about it this way: if you own a car, would you purchase insurance for it? If no accidents occur during the insurance period, would you feel like the insurance fee was wasted?

Or, we usually buy insurance for ourselves or our family members. Would you feel like it was a waste if you didn't have to use that insurance?

I don't think so! Because insurance is purchased for emergencies, so even if you don't use it, you wouldn't feel like the premium was wasted. So, how about in the trading market?

Similarly, facing losses, swiftly executing a "stop loss" is also to protect your hard-earned money from significant losses, right?

In this article, I will share with you the practices and insights of these masters when they faced losses in trading from the 6 investment books I have read. For those of you who still can't make up your mind when facing losses, maybe you will find some inspiration.

Legendary Master 1: Jesse Livermore

Jesse Livermore, the greatest stock trader in history, experienced 8 bankruptcies in his lifetime, accumulated huge debts, but was able to rise again after bankruptcy.

In his book "How to Trade in Stocks," he mentioned that before deciding to buy a stock, you should plan a clear goal of "exit the trade if the development after buying the stock does not meet expectations," and definitely execute it.

One of Livermore's rules of money management is "stop loss should not exceed 10%." You should exit quickly when the loss is still small to avoid the risk of more severe losses in the future.

Because if the loss exceeds 10% and you don't stop, you may need to make twice the profit to break even. Therefore, you should establish a clear stop-loss mechanism before entering the market.

However, many people, when they see the stock price fall even lower than when they first bought, often think it looks cheaper now and continue to buy more to average down their cost.

The concept of "never averaging down on losing positions" is repeated throughout the book. When the market confirms that your view is correct, you will see profits in your account, indicating that the market meets your expectations.

However, when you see losses in your account, it means you were wrong, maybe the timing of entry was wrong, or you missed some important factors.

At this point, you should stop making mistakes, exit quickly with a stop loss, because when you are in a state of fear of losing, emotions will start to cloud your judgment, making you lose confidence in your holdings. After exiting, reassess and you can re-enter at any time.

"If your first position shows a loss, then making a second move shows courage without intelligence."

Facing losses, most people are unwilling to accept them and cannot execute a stop loss immediately, unwilling to admit they were wrong. This is one of the main reasons why most people cannot make big money in the stock market.

The market is never wrong, but human perspectives often are!

Although Livermore used 10% as a stop loss principle, he also said that he often closed out positions before reaching 10% because the performance of those stocks felt off.

Don't spend too much time trying to figure out the reasons behind the price fluctuations of a stock. Behind all significant movements in the stock market, there is an irresistible force, usually revealing its true nature afterwards.

So, once you make a mistake (your position incurs a loss), the only solution is to do the right thing, stop making mistakes, and exit without hesitation.

Legendary Masters 2: Mark Minervini

Mark Minervini is one of the most successful traders in the United States, with nearly 30 years of trading experience and a three-time champion of the U.S. investing competition.

When it comes to trading, Mark's primary concern is always: "How much loss can I afford?" rather than "How much money can I make?"

This is different from most market investors (traders), as most people trading only think about: "How much can I make from this trade? How much will I lose if I don't enter now?"

The reason why most traders cannot decisively cut their losses is because they often become emotionally attached to their positions. They have spent a lot of time researching, and when they see the price of their carefully selected investment dropping, they often find it hard to believe.

To avoid significant losses, the only way is to decisively cut losses and exit before small losses accumulate into large losses. However, this is also one of the most difficult disciplines for traders to strictly follow, as it requires admitting that the initial purchase was a mistake, and no one likes to be wrong.

If you do not learn to cut your losses, you will inevitably encounter losses that you cannot bear. If you want to succeed and survive in the market, the only way is to protect your trading capital.

"We cannot control price movements, but we can often control the extent of our losses."

Successful traders can adapt to new external environments and change their mindset at any time. Top traders do not fall in love with a particular stock. The goal of stock trading is to make money, not to prove themselves right and the market wrong.

"The difference between successful and unsuccessful investors lies in how they handle losing positions."

Legendary Masters 3: Mark Douglas

Mark Douglas is a financial trading psychology expert, and since 1982, he has been a mental coach for professional traders.

Do not become a "passive loser." In the trading market, once you make a trade, you must actively participate in cutting losses. If you do nothing, losses may continue to increase, and the damage to your trading positions may be endless.

However, we often avoid facing potentially painful issues by instinct, such as closing out profitable positions too early or admitting mistakes and cutting losses.

The simplest way to avoid pain is to "convince yourself" that your positions are good trades, with unlimited profit opportunities or collecting all the evidence that shows no losses in your trades.

The market generates various information that you can use to support any fantasies, distortions, or expectations to avoid facing painful issues.

But the key to resolving these issues lies within yourself. If you decide not to take action for any reason, you may end up losing everything.

Before trading, make a plan for cutting losses and execute it without hesitation. Once you cut your losses, there is nothing to consider, measure, or judge, and nothing can tempt you or threaten you with a potential disaster.

When faced with losses, if you take no action and the losing trade eventually turns profitable, you reinforce improper behavior that can lead to a disaster in the future.

Accepting and facing inevitable losses is a trading skill that most people learn through painful experiences, but it is a fundamental element that must be learned when trading to make profits.

Legendary Masters 4: William O'Neil

William O'Neil is a brilliant investor. In 1988, O'Neil compiled his investment principles into a book called "How to Make Money in Stocks," which became the best-selling investment book of that year and a classic read for all professional investors in the following decades.

He mentions that even the most successful investors make mistakes. These bad decisions can lead to losses, and if you do not follow discipline and caution, some of these losses can become very severe.

You must accept the fact that stock selection and timing are often wrong, even for the most experienced professional investors, and letting losses continue to grow is the most serious of all investment mistakes.

Individual investors must set firm rules and limit the maximum loss on each stock to between 7% and 8% of the original capital.

When stock prices fall, even if you do not sell, you are still experiencing losses. Therefore, it is best to sell the stock and convert it back into cash, so you can objectively consider all aspects.

O'Neil believes that those who say to themselves, "I'm not worried about my stocks falling because they are good stocks and I continue to receive dividends," are very dangerous and possibly foolish.

Good stocks bought at the wrong time can fall just as much as bad stocks, and they may not be as good as you wish them to be.

There is nothing certain in the stock market, and no stock is safe. Any stock can fall at any time, and you cannot predict how much it will fall.

The first rule for highly successful individual investors: always cut your losses and limit the amount of each loss. To achieve this, you need unlimited discipline and courage.

When your decision may be wrong, admit the mistake and sell without hesitation. Execute stop-loss orders before losses escalate. You must go with the flow and not try to force the market to comply with you.

"The secret to making big money in the stock market is not always making the right decisions, but minimizing losses when your decisions are wrong."

Legendary Master 5: Welles Wilder

Welles J. Wilder is hailed as the "greatest technical analysis master of the 20th century" and is renowned for his many innovative and original concepts in the field of technical trading.

"Stop loss at the right time, continue to profit" is the most important phrase in his trading.

The only way to make money is for profits to exceed losses. And the only way to avoid large losses is to "cut your losses small." You should not feel pain over small losses.

In the trading market, once positions are established, most people become less rational and objective, more emotional and subjective, invest a lot of emotions, and start looking for evidence to prove themselves right.

You often see that when traders establish positions, the stock price goes in the opposite direction, but the traders refuse to let go, hoping that the situation will not get worse, refusing to admit that the situation has already worsened.

When we find ourselves hoping for a certain trend in stock prices, that is when we should immediately exit the position. If we are unwilling to admit we are wrong and unwilling to exit when we are wrong, it is almost impossible to continue to profit in the market.

Therefore, traders must understand that cutting losses is something that must be done every day, with every trade, always, without exception, no excuses are allowed.

Therefore, traders should establish a stop-loss mechanism before entering the market, as this is when the mind is clearest.

If there is no stop-loss mechanism, when positions start to lose money, traders are easily tempted to wait and see, making it easier to fall victim to emotions and excuses, turning a small loss into a big loss.

"Do not worry about profitable positions, worry about losing positions. As long as you handle losing positions well, profitable positions will naturally help you make money."

Legendary Master 6: CIS

CIS, known as the "God of Japanese retail investors," managed to turn a capital of 3 million into 23 billion in just 16 years through stock investments.

He believes that "not wanting to admit defeat, not wanting to admit failure" is human nature, but in the stock market, it is easy to lose everything.

Newcomers to stock trading do not understand stop-loss. Even though they quickly take profits, they hesitate to cut losses, as they do not want to face the fact of losing money. They want the stock price to return to the buying price, which is a typical losing pattern.

"Rather than wanting to make money, you must first overcome the fear of losing money, otherwise it is difficult to beat the stock market."

"Doubling down" is the worst investment technique, as sometimes it can lead to bankruptcy. Doubling down is increasing positions despite knowing it will fail. At this point, it is important to admit failure, retreat quickly, that is, "cut losses."

CIS believes that the timing of "cutting losses" is not related to the purchase price of the stock, or whether the stock is currently profitable or not. Once he senses something is wrong and predicts a drop, he will sell the stock immediately, no matter what.

As long as you are in the stock market, cash in hand is power.

Summary

The six successful traders mentioned above have been able to stay active in the market for the long term not because they have some secret trading strategy, but because they can discipline themselves to control risk, leading to results that most losers cannot achieve.

Facing losses, admitting mistakes, and cutting losses quickly are their common characteristics. Even these legendary traders cannot guarantee that every trade will be profitable, but they can promptly handle failed trades, consistently achieving "big profits, small losses," in order to profit in the trading market in the long run.

If you are currently facing losses in your positions and still cannot bring yourself to execute a stop-loss, I would recommend reading the trading philosophies of these top traders and learning from their trading mindset and logic to get closer to the success of the winners.