Why controlling your loss in stock is important ?

I came up with the average calculator or loss calculator. In the example i have demonstrated why controlling loss is very important.
On an average a stock can rise 5% any day but most of the stock rise plus or minus 20 to 50% in  year.

Suppose you bought $1 stock with $1000, and the stocks fall down to $0.80, which is 20% loss. But in order to reach from $0.80 to $1.00, its 25%.

Now, if the stock falls from $1 to  $ 0.60, your in a loss of 40% but in order to reach from $0.60 to $1.00 is 67%.

What if the stock falls from $1.00 to $ 0.40, your in a loss of 60% but in order to reach from $0.40 to $1.00 is 150%.

If you look closely its virtually impossible for a stock value to rise 150% unless it has extremely good news. Most of the stocks don't have such good news or else it should not have fallen that badly. Many of us give up after 4-6 month out of frustration and accept our losses and then we move on.

So the best strategy is either average out when stock has reach the bottom or don't let your loss go out of hand which is impossible to cover it.

Before buying any stock, ask few question to yourself
1. Why should you buy that stock ?
2. Has the value of the stock reached the bottom price of the day ?
3. Can it go lower then the price you anticipating to buy the stock ?
4. How much profit can you take out of the stock ?
5. How much loss can y bear it before moving out of the stock ?

If your able to answer this questions you can minimise your loss and maximise your profit. Don't buy a stock because its listed in this blog or anyone recommending it or may be you love that company or product. At the end of day you want to make profit and not loss. Go by your own instinct. Check the average of 3 month graph before investing. A wrong move, decision in haste and too much greed cannot make money, infact the probability of losing money is higher.

Good luck and invest smartly.