If you're a normal human being, your need to feel good about yourself probably causes you to sell your winners too soon ? and -- your need to avoid feelings of regret, causes you to hang on to your losers too long.
At one time or another, we're all guilty of letting our emotions dictate our investment decisions. But the only way to succeed in the market, is to keep greed, fear, pride and hope away from your trades.
The most successful investors know exactly when they're going to sell a stock, the moment they buy it. Often they use "trailing stops" which move along with the closing price of the stock. It's a purely mechanical decision they make as an impartial observer ? and never based on feelings or instincts.
How many times has "fear of loss" caused you to sell a stock that brokeout the next day? Have you ever "fallen in love" with a stock ? "hoping" it would breakout after an initial 10% pullback, only to end up losing your shirt? Has "greed" kept you in a stock where you wanted 50%, not 20% -- only to have the bottom drop out in a week, letting your profit dissolve into a loss? Have you ever held on to a loser because you wanted to prove your initial "instincts" were right after all?
By pre-determining the maximum amount you are willing to lose on a stock or fund, you can't really get hurt. Equally important, this simple, proven strategy keeps you in a profitable investment so you don't sell too soon and miss out on profits.
In a hypothetical example, let's say you begin with $25,000 in a variety of stocks and funds. The first year was good and you made 25%. Now your portfolio is worth $31,250. You do the same the following year and now your portfolio is worth $39,062. Then the third year you lose 50%.
That would put the value of your portfolio back to $19,531 ? which is less than you started with. Just one year's loss can wipe out two years of great gains.
Now let's say you had used the "trailing stop" strategy during these years...
You had the same $39,062 at the beginning of the third year ? but ? you were using a 15% "trailing stop". As soon as the value of your portfolio dropped 15% to $33,203, you would automatically been stopped out, and would have locked in a profit of $8,203. I'm sure you'll agree, that's quite a difference!
Do this with just a few of your stocks or funds, and you can see how you can easily pocket thousands of extra dollars ? while simultaneously minimizing your losses.
The "trailing stop" strategy is a time-proven tool for completely eliminating any emotions from dictating your investing decisions. The only problem is that it requires a lot of your time and a lot of work on an ongoing basis. If you have 25 different stocks, you may have to make 25 new calculations every single day.
The GOOD news is that now there is a new software program that automatically does all the tedious calculations for you. It can prevent you from taking big hits that can hurt you ? while simultaneously letting your winners ride. Plus, you can now accomplish all this in about 10 minutes a day.
The program, "STOP-Master Portfolio Manager" is a great time saver. It monitors up to 50 positions in your portfolio. It automatically grabs current stock prices off the internet ... recalculates new trailing stop SELL prices as needed ... and completely updates your entire portfolio. When one of your positions hits your pre-determined SELL price, you are immediately signaled with a Pop-Up Alert. Then, simply instruct your broker to sell. No emotions. No needless losses. Greater gains.
? 2004 Empire Direct, Inc. All Rights Reserved
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You have permission to publish this article electronically or in print, in your Ezine, on your Website, or in your Ebook or Newsletter as long as the Author's Resource Box is included with the article.
About The Author
James M. Clay has been a successful investor for over 20 years. He has shown many people how to use this simple technique to dramatically cut their losses, while simultaneously locking in profits. To find out more, please visit: http://www.automaticinvestmentprotection.com
http://www.automaticinvestmentprotection.com
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