We all know people who boast about how they bought Apple (AAPL), Alphabet (GOOG, GOOGL) or some other stock at ridiculously low prices. Maybe that makes them a great investors -- but when it comes to producing good investment returns, it's often counterproductive to focus too much on your cost basis.
Instead, you should focus on current conditions and not let the ancient history of your entry points unduly influence what you do. If you have a long-term thesis that favors a stock, by all means stick with it until conditions change. But we should always be coldly objective when considering whether to buy, sell or hold stocks.
Now, many basic rules of technical analysis stem from the idea that people remember their entry points and have emotional reactions as a stock moves up or down from there. In fact, the concepts of "resistance" and "support" come from the observation that players will act in certain ways as a holding fluctuates relative to their entry points.
As gains or losses build, we can't but help to react in an emotional manner, which is why chart patterns can often predict future price movements. But if you understand the psychology that drives certain technical moves, you can be aware of your own emotions in similar situations and make better trading decisions.
One of the best things we can do is to simply forget our entry points and view our holdings through fresh eyes every day. If you don't dwell on the fact that you're sitting on big unrealized gains or losses, you'll tend to be more objective when making sell-or-hold decisions.
Forgetting what you paid for a stock isn't easy, but is very important when you're trying to be objective. If you've been holding a stock for a while and are sitting on a fairly sizable loss, you'll feel differently than if you just bought a position and it hasn't moved much.
Most people are much more inclined to hang on to a big losing position because they have an emotional involvement with the stock in addition to their financial commitment. It's easy to understand the hesitancy to sell such a long-term holding, but inertia in decision-making is probably what hurts players more than anything else.
Now, making decisions on a regular basis doesn't mean that you have to buy or sell stocks every day. In fact, doing nothing is the right choice most of the time. But you have to make that decision consciously rather than simply letting it happen by default.
One way to deal with this is to mark your positions to market every day. Look at your stocks as if you just bought them at current prices and ask yourself if you still want to continue to own them. If you're holding on to a stock with a fairly big loss, ask yourself: "Would I buy this position today at current market prices?"
Your answer will often be quite different from what it'll be if you compare a stock's current price to your entry point. But remember: Outside of taxes, the price that you paid for a stock is actually irrelevant now.
You can't go back and change your entry price, so there's no use in dwelling on it. What you can do is make decisions based on current conditions, and you'll usually make better ones if you aren't hamstrung by emotions.
I suspect that a losing stock's chart will look terrible in many cases, but you're holding on anyway because you're emotionally and financially committed. You don't want to make the hard choice to lock in your losses and move on. But my advice is to simply mark your stocks to today's prices, forget your entry points and make decisions based on current conditions.
Removing emotions from the process isn't easy, but it's in your power to do so if you choose to. Believe me -- cold, hard analysis will make you a better trader and investor!