This note is a follow-on to our list of stock market tips tips over at gigascanner.com. These are not stock tips per-se; really they’re more “advice” on trading and investing. They’re tidbits of tribal wisdom learned the hard way, in the trenches, through many years of trading and investing.

Generally speaking, in the stock market there are specific things to do, and not to do, and below we’re going to look briefly at a couple of things you don’t want to do, when it comes to cutting losses and taking profits.

Cutting Losses

Losses absolutely do need to be trimmed, but you don’t want to cut them too closely. Most people will never cut losses at all, and their accounts can be decimated – as we’ve emphasized in some previous posts – but the other end of the spectrum is no good either. You won’t get wiped out all at once, but it will be more of a slow drip. The math is simple. You could wind up trimming a lot of small losses that add up to significant change. Since you’re not giving them enough room, or buying at the wrong price, or chasing a stock, you will inevitably wind up cutting a lot of them. And, paying a lot in commissions. The truth is, buying right will solve at least half of the selling problem. The Gigascanner stock chart screener will be immensely useful to get the timing right.

Taking Profits

Taking too-small losses is particularly odious when combined with measly profit-taking. This is another thing you don’t want to do. Chances are you’ll need a fairly big winner to offset all the losses, just to keep your head above water. Consider that it’s going to take some time for a stock to go up by 20 – 30% or more, and that’s probably what you need it to do, to offset all the losses. The math is rigged against you. You should never let it happen, but if your account ever gets down by 50%, you will need to make 100% just to get back to even. And this is exceedingly rare, even for a professional investor.