When foundations shift, it's time to take a new position.

Often, when we're wrong, we avoid cutting our losses. The thought of realizing the loss causes us to procrastinate.

One of the most valuable lessons I've learned in trading, though, is to take the loss as soon as the thesis doesn't pan out.

When we delay, we end up incurring larger losses that are much harder to build back from.

Sunk cost doesn't matter. What matters is "will the asset retain value in future?"

When I'm debating exiting a position, I ask myself three questions:

• Why did I believe the asset would retain value or grow in value?

• Is it still possible that the original reason is valid? If so, how likely is it?

• Are there any new reasons that the asset may hold value or grow?

Once I've answered those questions for myself, I either decide to hold my asset under a new thesis, or cut my losses as effectively as possible.

When we hold onto something that no longer supports our initial thesis, we are gambling. It's a switch from calculated risk/reward, to emotionally based guessing.

The more we do this, the more risky our trading behaviors will be. If we hold ourselves to our research and exit positions when they no longer align with our analysis, we proceed forward on the merits of our own skill, rather than random chance, or emotional swings.

It's hard to sell something for less than we bought it. But if we made a wrong purchase, we need to correct it quickly, and if our research wasn't strong enough, we'll learn with the next trade. Don't let it drag your portfolio down.

Stay consistent with your decisions. We don't trade the asset, we trade the thesis. If the thesis weakens or fails, we find another, wherever it may be.