Phase Seven: Set Buy and Sell

If there was ever one concept that is ignored by investors, and one concept that is considered the "golden rule" that should never be broken is the selling of a stock.

Now that you have confirmed the market, the index, the sector, the group, the fundamentals, and the technicals, you are ready to buy a winning stock that you have found thru this funnel. The problem lies in what you do after you buy the stock. Will you sell it for a 10% gain? 20% loss?, 80% loss, 150% gain, 1000% gain??? Only a sound buy and sell strategy will determine that.

Remember way back in the first blog, I left you with a rule to never keep a stock beyond a 9% loss. I want to reiterate that rule. SELL A STOCK NO MATTER WHAT, AFTER A 9% LOSS. The stock is not reacting the way you expected it to, and if you hold on, all your gains in other positions will be useless.

Let go of your ego. Ego kills investing, and will destroy your portfolio if you let it.

To put it into perspective:

A 10% loss of a stock requires a 12% gain on the next stock to break even.
A 20% loss of a stock requires a 25% gain on the next stock to break even.
A 50% loss of a stock requires a 100% gain to break even.
A 100% loss, you might want to re-think you as an investor, as you should never EVER get to this point.

A good thing I like to do when I buy a stock is print out a chart from my favorite charting service, draw an upper and lower control limit. I determine on the chart at what price I have to sell my stock for a loss, and then input a stop-loss order with my broker. Conversely I set an upper control limit of where I would accept a gain on the stock. This is usually 25%. All I am looking to do is gain 25% and move my money into the next investment, unless it is showing outrageous price gains, in which case I want to hold onto that stock and make a healthier gain.

This concludes our first series on the seven phases to making money with stocks. Tomorrow we brush up on our picks.