Wise words... while it's from the context of forex, it will apply to stocks investing too:
The fluctuations that are of regular occurrence seen in the market is a constant battle between the buyers and sellers to take control and is just part of the game and therefore should be anticipated in each trade.
You must understand that you need to stop trying to time the market at the exact time a top or bottom will happen.
Hindsight makes this approach seem ideal but the big problem with this is that hindsight does not make you money. We can all successfully pick these ideal zones after the fact, but how many of us are consistently really making money? How do we counteract the effect of these fluctuations that destroy the psychology of traders?
The answer is the correct usage of a stop- loss, position sizing, and pending orders.
We are all greedy by human nature and adjust our stop loss to meet our larger lot size (positioning) inside the killing zone of the market (normal fluctuations).
Use a position size & stop-loss combination that meets the 1-2% risk bracket and a pending order that gives you a better entry and more importantly lets you walk away from the monitors. Adjust your position size to meet a stop loss that gives the trade the room it needs to play out that if in fact gets trigger confirms your analysis was outright wrong.
Micromanaging the market fluctuations is detrimental to your well-being and truly halts your development as a trader.
Do not risk money that determines if the rent will be paid this month and focus instead on becoming proficient in a proven strategy. Focus on acquiring capital, if that means getting a second job or cutting back on eating out largely depends on your individual circumstances, but once your proficiency meets available cash, it will be all worth it.
You need the right mindset and practice “perfect practice” because if you don’t, I guaranteed you the market will gladly begin take your money away.
A stop loss should be placed in a zone where the trade idea becomes invalid.
Most of the traders place their stop loss in a way to achieve the risk reward they want, and this is completely wrong.
Source: http://www.forexfactory.com/showthread.php?t=589024