Are You a Bag Holder?
A Bag Holder is a trader or investor who holds a position in a stock which has decreased substantially in value or is now worthless. In other words, the investor is left “holding a bag full of worthless material”. Since every trader and investor is attempting to make money in the markets, obviously, being a bag holder is not something to be proud of.
So why do traders allow themselves to become bag holders? There are a few different explanations. For one, they may not be monitoring their portfolio as often as they should be. Secondly, they may not want to admit that they’ve made a mistake. Thirdly, they might just be hoping that the stock will eventually recover. No matter what the case may be, becoming a bag holder can be avoided completely by creating trade plans that involve an exit strategy (whether the stock goes up or down) in advance. Overall, limiting losses is just as important as capturing gains – not all trades will be winners, so you can’t let small losses turn into big ones.