10 questions to ask yourself if you are holding a ginormous losing position and don’t know what to do

By Paul | Published: January 8, 2010

In the unfortunate case that you are holding a massive losing position in your portfolio and don’t know what to do, the first step to fight back is to reassess the situation with a rational, unbiased mind. Easier said than done.  But that is what I learned the hard way a few years back when I bankrupted my trading account in a single stock.  I waited for weeks and then months.  While checking online forums for discussions on the stock, eager for others to fuel my hope.  Hopes for the stock to come back to some better price so that I can unload.  3 years later, the company’s stock price is still screeching along the zero mark.

While I’d like to think that I have come a long way since then, there is no guarantee that I won’t find myself in that situation again.  As such, I developed a self-assessment questionnaire with questions that needed to be asked in a crisis.  But often not because people are always too emotionally caught up.  It is like an emergency checklist for the emergency.

Here are my 10 questions to ask yourself when nothing is left but false hope in a dire trading position:

  1. What is your current account drawdown compared to your previous performance?
  2. How proven is your trading system?
  3. Are your reasons for entering this position still valid?
  4. Is the reason for letting the trade breakaway from you within your trading strategy?
  5. What are the emotional reasons to hold this trade?
  6. What are the logical reasons to hold this trade?
  7. What are the emotional reasons to exit this trade?
  8. What are the logical reasons to exit this trade?
  9. What can you do to reduce your overall risk?
  10. And last but not least, WHAT IF the price breaks against your trade even further?

In any case, once the crisis is over, it is time to reflect and review what went wrong to prevent this from happening again. After all, at least make something out of this by learning and improving.  And if you can, please share with us your learning experience in the comments below to help other readers.

“There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!”

Reminiscences of a Stock Operator, by Edwin Lefèvre

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