World events, or rather an investors response to world events, can cause the
stock market to move rapidly. In the case of this fiscal cliff, if the
government does not come to an agreement by December 31, fear will likely be the
driver. Fear will drive investors to sell their stocks, which in turn drives the
market down, carrying your investments right along with it.
Ladies, how do you protect your investments? By having a risk management plan in place.
Your risk management plan is your parachute. I establish my risk management plan
before I select what stock or ETF to invest in. Only three options can occur
after I invest in the stock:
1) I make money.
2) I lose money.
3) I break even.
Case #1
I set my profit goal (50%). Once I have reached my goal, I need to implement a
risk management plan to protect my profit. How much money am I willing to lose
(5%) before I sell my investment and take my profit? So, if I invest $3000 in a
stock or an ETF, once the value has increased to $4500, I've hit my 50% profit
goal. At this point, I enter a trailing stop loss order of 5%. If the value of
my investment drops to $4275 (5% of $4500), my stock AUTOMATICALLY sells to stop
the loss. This is my parachute that ensures a safe landing. Now once my
investment has hit $4500, the value could continue to go up. If it goes up to
$5000, the trailing stop order will continue to trail the profits. If the value
of my investment drops to $4750 (5% of $5000), my stock AUTOMATICALLY sells to
stop the loss.
Case #2
Before I enter into the investment, I ask myself how much money am I willing to
risk in this investment before recognizing that I've made the wrong choice, and
decide to sell the investment, cutting my losses (20%). So, if I invest $3000 in
a stock or an ETF, once the value has dropped to $2400 (20% of $3000), I've hit
my loss limit. Now, I am not a day trader. I don't spend my day in front of a
computer watching my investments. I would rather be out living my life, spending
time with friends and family. So, as soon as I purchase the $3000 investment, I
enter a stop loss order of 20%. If the value of my investment drops to $2400
(20% of $3000), my stock AUTOMATICALLY sells to stop the loss. This is my
parachute that ensures a safe landing.
Case #3
If my investment hasn't moved much in 6 months, I essentially have broken even
because I have decided to sell this investment and buy another stock or ETF
where I expect to make a profit. For this case, my 20% stop loss was in effect
the entire time. This is my parachute that ensures a safe landing.
In my own performance over the past 8 years, since learning the systematic
approach my mentor taught me, if I look at 10 trades, 7 will make money, 2 will
lose money, and 1 will break even. Since I let my profits run, cap my losses at
20%, I always come out ahead with the stock market. My risk management parachute
protects me.
It's never too late to get a parachute, even if you're already invested in the
market (the plane is already up in the air).
Best of luck to you in the market!
Aneshia
stock market to move rapidly. In the case of this fiscal cliff, if the
government does not come to an agreement by December 31, fear will likely be the
driver. Fear will drive investors to sell their stocks, which in turn drives the
market down, carrying your investments right along with it.
Ladies, how do you protect your investments? By having a risk management plan in place.
Your risk management plan is your parachute. I establish my risk management plan
before I select what stock or ETF to invest in. Only three options can occur
after I invest in the stock:
1) I make money.
2) I lose money.
3) I break even.
Case #1
I set my profit goal (50%). Once I have reached my goal, I need to implement a
risk management plan to protect my profit. How much money am I willing to lose
(5%) before I sell my investment and take my profit? So, if I invest $3000 in a
stock or an ETF, once the value has increased to $4500, I've hit my 50% profit
goal. At this point, I enter a trailing stop loss order of 5%. If the value of
my investment drops to $4275 (5% of $4500), my stock AUTOMATICALLY sells to stop
the loss. This is my parachute that ensures a safe landing. Now once my
investment has hit $4500, the value could continue to go up. If it goes up to
$5000, the trailing stop order will continue to trail the profits. If the value
of my investment drops to $4750 (5% of $5000), my stock AUTOMATICALLY sells to
stop the loss.
Case #2
Before I enter into the investment, I ask myself how much money am I willing to
risk in this investment before recognizing that I've made the wrong choice, and
decide to sell the investment, cutting my losses (20%). So, if I invest $3000 in
a stock or an ETF, once the value has dropped to $2400 (20% of $3000), I've hit
my loss limit. Now, I am not a day trader. I don't spend my day in front of a
computer watching my investments. I would rather be out living my life, spending
time with friends and family. So, as soon as I purchase the $3000 investment, I
enter a stop loss order of 20%. If the value of my investment drops to $2400
(20% of $3000), my stock AUTOMATICALLY sells to stop the loss. This is my
parachute that ensures a safe landing.
Case #3
If my investment hasn't moved much in 6 months, I essentially have broken even
because I have decided to sell this investment and buy another stock or ETF
where I expect to make a profit. For this case, my 20% stop loss was in effect
the entire time. This is my parachute that ensures a safe landing.
In my own performance over the past 8 years, since learning the systematic
approach my mentor taught me, if I look at 10 trades, 7 will make money, 2 will
lose money, and 1 will break even. Since I let my profits run, cap my losses at
20%, I always come out ahead with the stock market. My risk management parachute
protects me.
It's never too late to get a parachute, even if you're already invested in the
market (the plane is already up in the air).
Best of luck to you in the market!
Aneshia