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Citi Group is perhaps one of the few losers that are close to Leahmen Brothers and Bear Sterns. It has been a fantastic mover for the bears. I admire the courage of the bears that rode it all the way down to this level.

 

However in reality, there are far fewer bears than the bulls. Most people like to go long especially when stocks have been brutally beaten down. To those perennial bulls, it is just very un-natural to profit from the bear side. This kind of feelings is very normal. I believe you do not have to play the short side to be a great trader. You can be a great net long trader as long as you know when you need to stay out of the market. In other words, you never try to catch bottoms, which is a fool’s game.

 

Here is one of my own battles that can prove at least 2 things.

• cut losers
• stay out of them.

Citigroup(C): How I avoided losing everything by losing only 18%

I took this Citi trade back in Sep. 2008. I opened a long position around 1 and it was stopped out around 2. It was an 18% loser. 18% was a bit wide for me. But my position was kind of small. So the overall loss was fine. Another reason why I used such a wide stop loss was that it was super volatile back then. I took this trade for 2 reasons, one technical and one fundamental.

1. The down trend seemed to have stopped since a W bottom was formed. Technically, I had to take a shot at it.
2. I was also thinking that it was the biggest US bank and it was too big to fail.

 

For me, technical analysis (TA) always triumphs fundamental analysis (FA). So I took the trade and it failed. Of course, when I got stopped out, I did not know it would tank so much. Or I would have shorted it. Look back at it. I am afraid that I have to say “I am so happy I lost only 18%”.

 

The second good thing is that I totally stayed out of it since I NEVER try to catch bottoms.
One last thing, your paper loss is real loss. Never ever try to fool yourself into believing “If I do not sell, I do not lose”. That kind of attitude will make you hold onto your losers and wipe out your trading account.

Now repeat with me out and loud “cut losers and live to fight another day”. If I can do it, you can do it…. BTW, I made the money back very soon by taking 2 trades in Honda (HMC) .

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