Good Advice

I caught a brief story today about ‘exits’. The following excerpt is right from the trend following play book:

“It’s a common enough saying that people use in various situations in everyday life. But when you’re a stock investor, the phrase “cut your losses” takes on a special meaning. Investors are tempted to hang onto a stock that’s begun to tank. It’s easy to think, “Well, this stock can’t go any lower,” or “It’s a good company; the stock will come back.” But you don’t get ahead in the market by hoping and wishing and guessing. A better plan is to apply a strong set of rules that have worked. While your stock-buying rules are your offense, your sell rules are your defense. It’s inevitable that you’ll make mistakes or you’ll buy a stock at exactly the right point, but the breakout fizzles. You want a Plan B ready for those situations. Here’s what that Plan B looks like: Say you bought a stock at the proper entry point. But the breakout goes awry, and the stock moves lower. Keep an eye on it. If it falls 7% to 8% below your buy point, sell it.”
Investor’s Business Daily
Katharine Stalter