Trailing Stops - How I Track Them... And How You Should, Too By Dr. Steve SjuggerudMy two basic rules for consistent investment success are as follows:
1. Buy something of extraordinary value when nobody else wants it. 2. Don't lose money... use trailing stops.
Good investors concentrate their time looking for #1 above. But great investors concentrate on both #1 and #2.
"Don't lose money" sounds flippant. But it is tricky business. A good money manager can't just buy smart... he's got to sell smart too. It is my opinion that most investors - even professionals - don't have a clue when to get out when they get into a position.
Today, I'll show you a simple "worst-case" rule for when to get out - using trailing stops. And then I'll show you
software that I use to track my trailing stops myself. It's inexpensive, easy to use, very good and free to try. You ought to give it a shot...
Why Use Trailing Stops...
People don't have a plan to get out of an investment. So they risk being stuck in a position where a stock they own is down 50%... and they need it to rise by 100% just to get back to break even. Only stock continues to fall...
They may even find themselves in a position where a stock has fallen by 90%. But by time it's down 90%, it has to rise by 900% just to get back to break even. That's asking a lot.
What I mean when I say "don't lose money" is: "Don't put yourself in a position for a catastrophic loss." You can generally avoid being down 50%, or 90%, with a simple strategy I recommend to readers of my newsletter, True Wealth.
The simple strategy is called a trailing stop. As a very rough rule of thumb, I recommend a 25% trailing stop. Here's how trailing stops works:
