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Secret 25

Never average a loss

This is critical. I've talked to stock investors who have had great success averaging down. When a stock they liked got cheaper, they bought more. When the long-term trend turned back up, they made out like bandits. A leveraged market, however, is different. Averaging a loss might work four times out of five, but that fifth time will wipe you out, and it is a bad habit to get into.

Look at it this way: If you make a trade and it starts to go against you, then you're wrong—at least temporarily. Why buy or sell more to average the loss? When it's getting worse day by day, why do your best to potentially compound the problem? Stop the loss early before it is eternally too large, and don't make it worse.


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