Commissions and transaction costs have plummeted in the last 15 years. The rationale behind staying put and minimizing transaction costs is not as compelling as it used to be. Unless there is a catalyst to be in a particular equity, a dividend forthcoming, news headline, general bull market, etc, it doesn’t hurt the average investor to stay on the sidelines if they are worried or uncertain about a position. Reduce the size of your position or trade out of it all together. Trading or investing is a lot about behavioral psychology. maintaining your confidence is the single most important thing an investor can do. It’s also the hardest.
So when is maintaining your confidence, just a psychological ruse? It’s easy to keep yourself in denial about a losing position. You say to yourself the merits of the investment are the same and if you just wait it out it will work. The market is missing the obvious. You quit looking at the painful situation and let it decline further. Finally in an act of desperation, you close out of the position and swear you will never touch that security again. Sound familiar?
This is all very typical behavior. One way of combatting indecision and denial is to just get out. There is nothing wrong with buying and selling the same security multiple times until you develop the conviction to stay in the trade. To become a master trader, traders need to trade, and need to continually hone their skills. Persistence, especially in the face of adversity, is a quality shared by most of the Wizard traders, according to Jack Shwager in his series of interviews with Market Wizards. If you are unsure of yourself about a position, just get out. After all, selling out is not like turning down an invitation from someone who won’t invite you back. If on a losing streak, reduce the size of your trades long or short until you are better in tune with the pulse of the market.