The First Secret of Successful Investing
In order to be successful while investing in stocks, you must have and use an exit strategy - one that will force you to methodically cut your losses and let your winners ride. If you follow this rule, you'll have the best chance of outperforming the markets.
The exit strategy we advocate is simple. Ride stocks as high as you can, but if they head for a crash, use your exit strategy to protect yourself from serious damage. You do this by means of a Trailing Stop Strategy which is set at 25%, and here is how it works.
What you are doing with this method is to discipline yourself to sell any and all positions at 25% off their highs. And this works as the price of the stock moves in either direction. For instance, if you buy a stock at $50 per share and the price begins to drop, you would sell your position when the price hit $37.50 per share. No emotion and no second-guessing. Conversely, if you bought a stock at $50 per share and it began to rise setting a new high at $100, you would then re-adjust the exit point to $75 and would sell that position if and when the price should drop to that level.
Two important points to bear in mind when using a Trailing Stop Strategy:
1. Use end-of-day prices only. This way, if the investment closes the day below your trailing stop, you can simply sell the next trading day.
2. Never place STOP orders, because NYSE traders are known to pile up stop orders and then execute them all at a horrible price.
NOTE: One tool that you can use to keep track of your trailing stops is Yahoo Finance's Alert Service, which will send you an e-mail when your stock hits a price you specify.
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The exit strategy we advocate is simple. Ride stocks as high as you can, but if they head for a crash, use your exit strategy to protect yourself from serious damage. You do this by means of a Trailing Stop Strategy which is set at 25%, and here is how it works.
What you are doing with this method is to discipline yourself to sell any and all positions at 25% off their highs. And this works as the price of the stock moves in either direction. For instance, if you buy a stock at $50 per share and the price begins to drop, you would sell your position when the price hit $37.50 per share. No emotion and no second-guessing. Conversely, if you bought a stock at $50 per share and it began to rise setting a new high at $100, you would then re-adjust the exit point to $75 and would sell that position if and when the price should drop to that level.
Two important points to bear in mind when using a Trailing Stop Strategy:
1. Use end-of-day prices only. This way, if the investment closes the day below your trailing stop, you can simply sell the next trading day.
2. Never place STOP orders, because NYSE traders are known to pile up stop orders and then execute them all at a horrible price.
NOTE: One tool that you can use to keep track of your trailing stops is Yahoo Finance's Alert Service, which will send you an e-mail when your stock hits a price you specify.
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posted by Bob Moser at
6:43 PM
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