Adding to Losing Positions
Research for Online Investors

by John Dalt

I am always torn on whether to add to a losing or winning position.  The easy decision is to add to a loser, this verifies our ego that we made the right decision in the first place.  We say to ourselves “The market will realize I was right, this stock will go back up, and I will make even more money.”  This is hopeful thinking, and I am guilty of it.  Hope is not a trading strategy.  It has occasionally worked out, but many times more money is committed, time goes by, and eventual capitulation to the market’s harsh judgment.

Adding to a winner is harder for me to do. If I catch a stock on a nice run, the tendency is to wish for larger position, to make up for the last loss. When I have done this, inevitably the market reverses and wipes out the gain I had on the original position. I think the discipline of selling losers immediately with a trailing stop and going to the next opportunity is the best strategy. This maintains our capital and lets us play another day. In today’s market, that is the most important place we can be.

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