How to deal with a low-priced selling position that has been left behind
Hello, this is Koyama.
In the previous newsletter,
you said, “I can’t help worrying about a price drop when I have a position,”
and came to discuss it,
and we shared the exchange with K, a member of the Stock Academy.
We introduced that conversation.
To put it simply,
“First, understand your own situation, and decide in advance what you will do at what price.”
That was the gist of the advice.
If you can thoroughly assess how much financial cushion you have,
and confirm it properly,
you’ll be able to see, for example, “even if daily circuit stops cause a big drop, I’m still okay.”
and that brings comfort.
However,
even so,
if stops keep hitting the lower price limit day after day,
and there’s a possibility of breaking the past low,
in the world of markets, you never know what will happen.
Therefore, you should trade while considering the worst case scenario as well.
For example,
if you hold two long positions and one short position,
and you imagine that the price drops to this level,
you would think, “I should add more selling if it falls to this price.”
That is what you would consider.
（※The ‘Ride the Wave’ method taught at Stock Academy
divides funds into five,and through margin trading
you balance long and short positions to accumulate profits.)
The idea is to temporarily fix the unrealized loss.This is the approach.
In this way,
when you fall into an unfavorable situation,
if you pre-plan what to do at what price,
your mind will calm down.
Because you can’t see the current situation,
fear arises.
But,
K said,“But if it rebounds from there and rises,
your added short position may be left behind, right?
If you think that,
when it falls to the pre-decided price, you might not be able to add more selling…and she said so.
”
I think many people think the same way.
“I don’t want to regret it.”
That feeling tends to come first.
But,
that doesn’t mean that
when you’re in a bad situation you should just do nothing and wait,
because unrealized losses will grow and you could be forced out of the market in the worst case,
so, choosing to do nothing while you’re exceeding your risk tolerance is not an option for a trader.
If you feel your resolve waver at that moment,
placing a stop-limit order to sell is also
one approach.
However, even then,
as soon as the stock price begins to fall,
some people carefully remove the stop-limit sell order that was placed…
They dislike holding a low-price sell order.
So,
for those who hate holding a low-price sell order,
how should they proceed?
Even if you end up left behind with a low-price sell order,
knowing how to erase it will change your mindset.
Therefore, today, as a continuation from last time, we will briefly explain
“how to handle a low-price sell order.”
Concise explanation follows.
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How to erase a low-price sell order
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Regarding the methodIn one word,
“netting settlement.”
In the above example,after adding a short position
the stock price rises,
and the short position is left behind,
two long positions
two short positions
are in place, so
the higher the stock goes,
the more the unrealized gains of the two longs
increase,
while the unrealized losses on the two shorts
also increase.
What I want you to focus on here is
the unrealized gains of the longs.
When the sum of these gains
exceeds the unrealized losses of the low-price short position,
you consider settling all three positions at once: two longs and one short.
With this trade,
K can finally erase the low-price short position she was holding and regretting.
And, in this way,
“holding a position and regretting it is okay because you can erase it”
once you understand this, your resistance to selling short at a low price will lessen.
By the way, at this point,the unrealized gains and losses have merely offset each other, so
you might think, “it hasn’t become a profit yet, has it?”
but first, the important thing is not to lose.
If you don’t lose, you will gain.
In the above example,
since we netted three positions via offsetting settlement,
you can take new positions again and
profit from them.
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There is no such thing as a risk-free trade
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Regarding Stock Academy
One final thing I want to tell you.
Among those who join Stock Academy,
there are people who think
“I can trade without any risk.”
and enroll.
Stock Academy’s method
is designed to profit whether prices go up or down,
so it may seem like a risk-free method,
but that’s not the case.
However,
in the world, there is no such thing as no risk at all.
Life is like that too.
At any time, there are risks in many forms.
Today, the risk of a car accident,
the risk of being attacked by a stranger,
the risk of a plane crashing into your apartment building,
even if the possibility is low,
the risks in life are endless when you think about them.
No one is guaranteed to be alive tomorrow.
There is no one in this world with such a guarantee.
In society
“complete no-risk”
does not exist.
Similarly,no-risk trading does not exist.
As for Stock Academy’s methods,
we cannot say, “you can earn without risk.”
If you pursue profits,
risk will inevitably arise.
However,
it is possible to pre-emptively anticipate the risks in the market,
and there are ways to address them.
And at Stock Academy,
we continually consider the risks when the market moves unfavorably,
and decide in advance how to respond,
so that you can trade safely and accumulate profits.
Compared to the typical approach of
“buy stocks that seem to rise,”
Stock Academy is clearly much safer.
There are investment schools that promote methods like
“invest to multiply funds instantly,”
and some of them may be more appealing.
However,in the long run, which is the real deal is obvious, isn’t it?
Learning only at Stock Academy is not claimed to be the only correct path,
but if you invest, please never forget to
practice risk management consistently.
I sincerely hope you do not go astray in the world of investing.
With that, thank you for reading until the end today as well.
Keizo Shimoyama
