Bagholder: How not to hang in a loss transaction

The word Bagholder in the literal translation means "portfolio holder." But in exchange slang, this term is called a trader or investor who is stuck in a loss -making position and refuses to close it, despite the continuing drop in price.

Bagholder is a person who bought an asset at a peak, but, instead of immediately fixing a loss, continues to withhold the deal, hoping for price restoration.

As a result, the trader plunges deeper into minus, and the size of the losses increases. Such perseverance in trading with a credit shoulder can lead to a large drawdown or complete plum of a deposit.

Why is a similar situation arise

There are a number of reasons why you can get stuck in a loss-making transaction:

Denial of reality - "This is temporarily ... will recover soon!" - One of the typical reactions. The psyche blocks the awareness of the loss.

The lack of a trading plan - without predetermined output points, the trader is without a guideline and flows into paralysis.

Availability without a strategy - a drop in price is perceived as an opportunity to “buy cheaper”. But if the asset is depreciated objectively, averaging only increases the risk.

An example from practice

The investor bought a XYZ campaign for $ 100 in the wave of hype. A week later, the price fell to $ 85 per share, but despite this, the trader does not close the deal. A month later, the cost fell to 60, the trader is “averaged”. After the next fall, the deposit is drained .

How not to become Bagholder

There are several simple actions and rules, which can be avoided by the drain of the deposit and reduce losses to a minimum.

• Install the feet right away : it doesn’t matter if you or an investor trader. The level of permissible loss should be determined before entering the transaction.
• Treat the asset in cold blood : financial instruments are not the subject of love. This is a tool with specific risk and profitability parameters. Even such a constantly growing asset as gold can cheaper.
• Before the transaction, drawing up her plan : a deal without a strategy is a game at random. Clearly determine the goals and conditions of closing the position.
• Do not average without understanding : additional purchases make sense only when there are objective reasons to believe that the asset is underestimated.

What to do if you have already become a hostage of such a situation?

The first is to recognize the situation. The loss itself is not dangerous if it is controlled. It is important not to allow one position to “drown” the entire deposit.

Conduct a new market analysis, and if there are no prerequisites for changing the trend, make a decision to close the unprofitable transaction.

Bagholder is not just a trader with a loss. This is a person who does not know how to recognize a mistake and leave the market in time. If you do not want to be in this place - trading according to plan, do not succumb to emotions and develop discipline.