This post originally appeared on Equities Magazine's Blog Does this sound like you? You buy 1000 shares of a stock at $20. It promptly drops to $18. You’re now sitting on a paper loss of $2000. And, you’re not happy. But, you’re sitting on a lot of cash. You figure if you just buy another 1000 shares at $18, the stock only needs to rebound to $19 and you’ve erased your loss. That’s only a single point. Even better, if the stock merely goes back to $20 – your initial buying spot – you’ll be up $2000. And then if it climbs like you anticipated it would in the first place, you can have a healthy gain. Seems like a sound plan, right? Wrong. Completely wrong. If what I just described seems like something you would do, please follow what I’m about to tell you: Stop doing it. Why? It’s a dangerous game. Sure, sometimes this strategy works just fine. Too many other times, though, it doesn’t. And, that capital you worked so hard to build can quickly evaporate.

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Now, I can’t blame you for falling into this mental trap. It’s human nature to delay or avoid pain for as long as possible. And, taking a loss – even a minor one like this – can be painful. But, honestly, if you’re not emotionally and mentally ready to accept losses on a regular basis, you’re not meant to be a trader. To make matters worse, some financial pundits and stockbrokers favor this exact sort of an approach. Hey, they say, if you liked the stock at $20, you gotta love it at $18, right? Wrong again. To begin, these groups are often selling this pitch to value investors who have long time horizons. But, you’re not an investor. You’re a trader with a short timeframe. You shouldn’t be listening to anything that has to do with investing. Beyond that, these sorts of moves are dangerous even for investors, as they face the same risk as traders in terms of endangering their capital. Let’s look at Citigroup. A year ago, the stock was around $50. Now, it’s less than a tenth of that. How many investors gladly bought all the way down, thinking they were getting a great buy? As a trader, how do you know that the stock mentioned in my hypothetical example won’t fall to $16? Or $14? Or $10? Will you keep averaging down all the way? If not, when will you get out? And, by then, how much of a hit will your portfolio have taken? As I teach in my classes, you must learn to be comfortable taking small losses. And, you must stick to your game plan, and not try to create plans on the fly. Actually, all of this relates to the most important characteristic of successful traders: discipline. As I’ve said time after time, you can have the best trading methodology, instincts, and equipment, but if you don’t follow your rules and maintain your discipline, you’ll get washed out of the market. It’s not a question of if, but when. So, the next time you’re in a situation like this and that inner voice tells you to stick with the stock and average down, just ignore it. Instead, take your loss, move on, and stay in the game.