“This Can’t Go Down Any Further!” – The 5 most expensive words in trading

The costliest conviction

There’s a bone-chilling phrase that echoes through trading rooms and living rooms alike, a series of five words so expensive they can effectively bankrupt your portfolio, sabotage your holiday fund, and ensure your retirement party never happens. Those five infamous words: “This can’t go down any further!”

If you’ve ever muttered that phrase—eyes wide with disbelief, heart throbbing with adrenaline, coffee cup trembling in your hands—then you likely know the punchline: of course it can go down further. Stocks, crypto, real estate, even baseball cards—they can all drop in ways that defy human logic, the laws of gravity, and your favorite financial influencer’s confidence.

So let us gather around the blazing dumpster fire of misguided market optimism, roast some marshmallows of humility, and talk about why it’s vital to learn three precious words that can save your trading account: “Cut your losses.”

A funny thing happened on the way down…

Imagine you’re on a sinking ship. The hull has a hole the size of a grand piano, water is flooding in, the crew is screaming, and the captain calmly proclaims, “Don’t worry, the ocean can’t get any higher.” That’s precisely how you sound when you say, “This can’t go down any further.” Everyone else can see you’re up to your waist in brine. The last thing you want is to double down on a leaky lifeboat.

This kind of denial is comedy gold—if you’re watching someone else do it. But when it’s your own portfolio plunging, it feels more like a haunted house with zero exits. Suddenly, you’re logging into your brokerage app at 3 a.m., refreshing the feed like you’re pulling the lever on a slot machine in Vegas. Maybe—just maybe—it’ll bounce this time! Cue the clown music.

According to a widely cited study by Barber and Odean, individual investors often hold onto losing positions far longer than they should, even as every rational indicator points south. It’s basically the academic way of saying, “People sometimes hold their sinking stocks like it’s the last slice of pizza at a party.”

Why cut losses?

• The universe laughs at hubris: Markets don’t care about your feelings. They are chaotic, majestic beasts that feast on your confidence. Philosopher Blaise Pascal once said, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” Substitute “sit quietly” with “cut losses,” and you have a perfect encapsulation of trading psychology. If you think you’re the exception—someone who can “just wait until it turns around”—the market is going to test your arrogance the way Thanos tested The Avengers.

In fact, behavioral economist Daniel Kahneman’s work on Prospect Theory shows that the pain of losses is felt more acutely than the pleasure of equivalent gains—so we cling to losers out of sheer avoidance of that pain.

• Opportunity cost—The silent killer: Every dollar stuck in a losing trade is a dollar not earning gains somewhere else. Holding onto a sinking stock “just because it must rebound” is like staying in a burning building because you’re convinced the fire department must arrive in time. Sure, maybe they could, but meanwhile, your eyebrows are singed, and your couch is on fire.

Research from the National Bureau of Economic Research indicates that missed opportunities (i.e., the inability to shift capital to better-performing assets) can cost traders more in the long run than the initial losses on the lousy trades.

• Preservation of mental capital: Constantly watching your losing positions sink is emotionally draining. Your stress hormones rocket higher than the national debt. You lose sleep, your cat judges you from across the room, and your best friend starts ignoring your texts about “this amazing turnaround that’s just around the corner.” Cutting losses can save you from anxiety attacks and life regrets. That’s priceless. Think of it this way: your mental capital is like a rubber band—stretch it too far, and it’s going to snap (usually right into your trading account).

Mathematical & statistical sense: The nerdy part

Here’s a stats secret: If your investment drops 50%, you need a 100% gain just to get back to break even. So, while you’re in denial about a 50% drop, you’ve effectively doubled the mountain you must climb to recover.

To avoid this, many traders employ a stop-loss strategy. For example:

• Percentage threshold method: Decide that if a stock falls by, say, 8% (or 10%, or 15%, whatever your tested threshold is) from your entry price, you will sell. No questions asked. No tears. No whiskey (well, maybe a small glass).
• Volatility stops: Calculate the asset’s average volatility (e.g., its daily standard deviation). If the price dips more than 1.5 or 2 standard deviations below your entry, you close out. This method ensures you’re factoring in the typical “wiggle room” of the price before it becomes a hair-on-fire emergency. A 2018 paper published in the Journal of Economics & Finance showed that properly calibrated volatility-based stops can improve risk-adjusted returns, especially in choppy markets.

I personally like the Chandelier Exit: a specialized form of a trailing stop-loss that links your stop to the highest high (for a long position) since you entered the trade, minus a multiple of the Average True Range (ATR). This way, the stop “hangs” like a chandelier from the ceiling of the market’s highest point, ensuring you ride the trend as long as possible but exit when the market drops sufficiently to signal that the trend may be over.

• Time stops: Some traders combine price movement with a time limit. If the asset doesn’t show signs of reversal or improvement over a set period, they exit—preventing themselves from getting stuck in a zombie trade. Because who wants to be the last one staring at a T. rex skeleton hoping it will come back to life?

Statistically, smaller losses are far easier to recoup than big, gaping ones. Cutting your losses early compresses that potential loss so that your next winning trade can more easily wipe the slate clean. Fail to do so, and you might spend the next year or longer just digging yourself out of the pit.

And yes, in case you’re wondering, countless backtests (including one I ran while wearing fuzzy slippers at 2 a.m.) confirm that small losses are easier to overcome than “portfolio-evaporating” ones.

The power of cutting your losses (and laughing about it)

• Live to fight another day: Profitable trading is more like a marathon than a sprint, except you can stop the race whenever your knees start giving out. Every seasoned trader has war stories—like the time they didn’t exit a losing position and watched their account wilt like a forgotten houseplant. You want to survive those mistakes, so you can come back armed with fresh capital and fresh perspective. “Live to fight another day” is more than just a cliché; it’s an entire mindset that keeps you from blowing up your account faster than you can say ‘meme stock.’
• Stress reduction: There’s a reason people who practice good risk management still have hair on their heads and a spring in their step. By cutting losses early, you avoid the hair-pulling anxiety of watching your portfolio do the limbo. Trust me, your future self will thank you when you can sleep without your phone under your pillow, waiting for a 3 a.m. crisis alert.
• Confidence building: The moment you stick to a stop-loss plan, you build discipline—a trait that pays dividends in every aspect of life, from negotiating house prices to saying “no” to that fourth slice of pizza. When you respect your own rules, the market ironically starts respecting you back. It’s like house-training a puppy: once you establish boundaries, everyone lives happier (though you might still find a chewed-up slipper or two in your portfolio).

The redemption arc

The next time you catch yourself whispering, “This can’t go down any further,” remember that’s the trading equivalent of a horror movie victim saying, “We should split up to cover more ground.” We all know how it ends.

Replace denial with discipline. Use mathematically sound rules—stop-losses, volatility-based exits, time constraints—to cut your losses before they become portfolio-eating monsters. Philosophically, your goal is not to be a market prophet but a market survivor, because only survivors get the chance to profit another day.

If all else fails, imagine your beloved capital dressed as a tiny, adorable cartoon character, sitting in a sinking boat, yelling “Save me!” This goofy mental picture might be just the comedic nudge you need to hit that ‘sell’ button.

And if you still have trouble letting go, just picture a squeaky-voiced clown singing opera at the bottom of a well. That’s your money crying for rescue. If that doesn’t spur you to cut your losses, nothing will.

Remember: the costliest five words in trading are “this can’t go down any further! Save yourself the heartbreak—and your bank account—by embracing the simple, powerful act of cutting losses. After all, your portfolio will thank you, your cat might respect you again, and you just might get to retire before your 100th birthday.

Now go forth, trade wisely, laugh heartily, and cut those losses before they cut you!