Your search on information on the topic of avoiding losses in trading says to me that your brain is in the correct place. A large amount of newbie stock traders concentrate on greediness or the reverse of risk aversion. Amateurs imagine how much money they can make if their stock goes up to xx, and not about how they can lessen stock trading losses.
Can you avoid losses in stock trading? Nix that idea. My own 10 year accuracy rate varies between 70% and 80%. In other words, 20% to 30% of my positions result in losses. However, there are steps you can take to shrink losses when stock trading.
1 – Don’t try and earn back your losses. The most awful action you can do after a loss in stock trading is to make a decision that on your next trade you will make back the loss. Lots of amateur traders will put on a riskier stock trade in a penny stock or any stock they think can appreciate in value even greater than their original losing stock trade with the plan that they will make back the money they lost. Do not do this. Getting in a riskier trade suggests you now amplified your chances of having a second losing trade. Do not get gluttonous and lose all awareness of fear because of a loss. Instead look at your stock trading method. Did you hold to your stop loss strategy? Did you rationalize and give reason for why you were continuing to hold the losing stock even while your original profit thesis was broken? Make any adjustments you need to your stock trading method then move on.
2 – Hold to your stock trading method. Quit jumping around from stock trading method to trading system when you incur a loss. No stock trading system is flawless. Continue with your stock trading system and make changes as desired but don’t hop from trading system to trading system. Get very good at a trading system before you make your mind up to machete it. As well, don’t become frightened and be exceedingly conservative.
3 – Determine the trend of the most important indices. Use either the S&P 500 or the Nasdaq and determine the trend prior to buying or shorting a stock. The idea is to trade with the trend, not counter to it.
4 – Determine your profit thesis before you enter the stock trade. The profit thesis must include what percentage profit you will have before you sell, and what percentage loss you will have before your sell. You must never risk more than you are attempting to profit. For example, in company ABC I am going for a 5% to 10% gain, with a 5% stop loss. Cut your losses quickly but allow your winning positions to ride.
5 – Enter your positions at a better level. I have found that when I go long a stock, if I’m up the same day of buying, my likelihood of it being a winning trade for me go way up. The entry is so vital that several famous traders have gone as far to say that they make their money on the entry, not on the sell.