And the Winner Is!! Did you buy CAR in January, 2021? It was Trending. 100 shares at $37.45 on 1/4/21; Trailing Stop Loss takes you out 11/3/21 at $322. Cash in your account $32,200! Today CAR is trading at $160! Nice, but not as good as $322!
There are really only 5 things that can happen when you invest and buy stocks or ETFs.
1. They can go up Big. Sweet!
2. They can go up Small. Nice!
3. They can stay flat. Ok.
4. They can go down Small. Ouch.
5. They can go down Big. No way, get me out of here! (or just Help!)
The first two, ‘up big and up small’, are great and you hope they keep right on moving. CAR is an example of what happens when it goes up Big and you have placed a Trailing Stop Loss Order.
The third, ‘stays flat’, is ok. It still has an opportunity to move up and make money.
The fourth, ‘down small’, is not ideal but tolerable. You might hang on and see if it’s just a dip or sell and have a small loss.
The fifth, on the other hand, ‘down Big’ — this is Bad!
We personally experienced several very major market downturns, including declines of 47% and 56%, which took almost 14 years to recover.
Numbers 1 through 4 are great to at least tolerable. You do NOT want to experience number 5!!
So what can an investor do to try to avoid “going down Big”?
Here are at least 4 important things to consider when an investor is about to make an investment.
1. Have you set a prudent Trailing Stop Loss Order to help manage downside risk and lock in upside profits? In the case of CAR, it started locking in profits within a week*.
2. Is the recent Price Volatility stable enough to give you confidence that the daily swings won’t initiate a premature Stop Loss?
3. Is the stock’s Average Daily Trading Volume sufficient to give you confidence that your STOP LOSS order will execute should the trade go against you.
4. Is the length of the Trend sufficient to provide adequate confidence that it may be sustainable at least for the short run?
These are just a few of the important elements of a Risk Management Strategy. Without a strategy for managing risk, a person should not be investing in the stock market or anywhere else!
Risk Management is a critical success factor in investing and sleeping well!
*Past results are not necessarily indicative of future performance.
We will show you some losers, too. Always, Ride Your Winners and Cut Your Losses!
Visit our FAQs to learn more about managing risk in order to grow profits and reduce loss.
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Remember – Ride Your Winners and Cut Your Losses!
