Cut Your Losers and Let You Winners Run
Yes you can be a successful stock investor, but to be one you have to have a real method to know how to buy stocks and make money.
You also need to know how to control your risk. That should mean being a bit diversified in several sectors and markets around the world. Then you should own be in several of them.
Are you wondering how many stocks you should own? The answer is you should have at least ten and preferably more than that.
Now you have probably heard of the saying cut your losers and let your winners run?
If you do that you will maximize your profit potential in the long run.
To do that you need to have a basic understanding of using stop loss orders.
That’s what this video is about. Watch it.
How to Use Stop Loss Orders
A stop loss order is an order you put in with your broker that tells it to sell your stock position if it falls to a certain level. As long as it doesn’t do that you will continue to hold on to your stock, but if it falls then your broker will sell your position and “stop you out” so to speak.
So there is more to this game than knowing the best stocks to buy, because you can pick out the best stocks and still have a few of them go against you enough to cause big losses in your account if you own big positions in them and refuse to sell.
If you put in a stop loss order right after you buy a position then you’ll automatically control your risk. Most people don’t have the discipline to cut their losses in the stock market, so if anything using stop losses will prevent that from being a problem for you.
But how to use them correctly is a big issue too.
Should You Use Trailing Stop Loss Orders
A lot of people will tell you to use trailing stop loss orders. These are stop loss orders that will automatically change and move higher if the stock moves up.
The idea is that this way you will not only protect the initial principal that you put your position, but the bulk of the profits you accumulate too.
Trailing stop loss orders are often placed on a stock’s moving average or at some fixed percentage rate of the price.
I actually advise against using these type of orders. I simply am not a big fan of using some fixed percentage in placing your stop order.
I explain why in the above video. But in a nutshell doing that will lead you to get shaken out more often from time to time. So I believe you are better to analyze a stock’s action over time and adjust your stop loss order to below key support levels – that way you’ll be stopped out more often when the trend in a stock really changes and not just due to some temporary gyration in its price action.
This takes a bit of knowledge of stock trading and the use of stock charts. You can get much more on these topics from me by taking a free membership to this website by scrolling down below.
Once you opt-in I’ll also send you my guide to stock picking titled The Two Fold Formula. It contains the most profitable pattern I’ve ever identified in choosing the stocks I buy that I have used since 1999.
I invest in markets all over the world and have used this method on various exchanges, including the OTC Bulletin Board, NYSE, and Nasdaq.
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