Given the option, we would all want to make money out of the share market in every trade we made. Unfortunately, there will be times when you buy a share and it does the exact opposite to what you were hoping.

I’m sure we have all heard of the term stop loss, having a pre-determined sale price in which to sell if the share drops. Having trail stops are also are good idea; as the share goes up, so does the level for the stop loss.

An important thing to remember though is that it is not important to be profitable on every trade; just to be profitable overall. Let’s look at a simple example of possible trades in a given week to demonstrate the point.

Say for example you buy 100 RIO shares on Monday, at $70 each. They then fall to $68 per share, giving you an unrealised loss of $200, plus the brokerage cost, which we shall make $29.95 per trade . You then decide to hold RIO and ride out the fall. RIO then jumps back to $71 on Friday afternoon, and you sell to close out the week. Considering brokerage this gives you a net profit of $40.1 or 0.57%. Not too bad considering you were almost 3% down on it at one stage; that’s a 4.41% recovery.

Let’s now figure though that instead, you sold RIO on Tuesday when it hit $68. You accept a $259 or a 3.7% loss. Now things aren’t looking so good for you at this stage. Let’s then figure that you decide to buy 134 WPL shares for $50 each. You have to fork out another $29.95 in brokerage but have contributed no extra money after the loss on RIO. The WPL shares leap up to $54 each on Friday to close the week and you cash in for the weekend.

Taking into consideration you incurred twice the brokerage for the extra buy and sell ($119.8 all up), you are left with $7116.1, an overall profit for both trades of 1.66%, a better result than keeping RIO, even though you accepted a loss. This is called the opportunity cost of buying or selling a share. Holding on to RIO in the above example means you make no actual losses, but you lose the opportunity to make more money out of WPL instead.

So remember, always make sure you are looking at the best opportunity, not just chasing your losses!