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Dealing With Losses

Unfortunately most investors in general and energy investors in particular are probably looking at some pretty alarming losses in their portfolios after the events of the last few weeks. Over time your performance as a trader or an investor doesn’t depend on whether you have any losses, as some positions going against you is one of the few certain things in a trader’s world. What counts in the long run is how you deal with them when they come.

Understanding that not all investments will work out is the first step in dealing with adversity. If you know that sometimes even your best, most well researched and logical ideas will be wrong, then you are less likely to make the situation worse when the inevitable happens. That is why I bang on so much about identifying a stop loss level at the time you initiate a position.

In times of normal volatility it can be frustrating to cut yourself out of a position only to see the market reverse and edge back towards your breakeven point, but at times like this having at least some of your positions hit their stops is of enormous benefit. Not only does it reduce the actual loss but it also changes your state of mind. You feel that your discipline was smart and that you have some cash to take advantage of any further falls. Your focus, therefore, shifts and you begin to look for a bottom to the move rather than worrying that there might not be one.

The key is to avoid turning a setback into a disaster, and much…

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