Never, ever lose big money in the stock market

Fsp Invest, 17 Sep. 2013

Tags: money, stock market, stop loss, trailing stop loss, trailing stop loss strategy, how to protect your capital, emotions, investing

Buying shares is easy. Anybody can do that. The hard part is knowing when to sell. And very few people know how to do that. We’ve all made expensive mistakes - either missing the full upside by selling too soon, or taking a huge loss by holding a falling stock too long. Read on to find out how you can never, ever lose big money in the stock market…

Let’s face it. Most people don’t know when to sell a falling stock, Alexander Green in Investment U explains...

So they freeze! They say: “Should I just keep holding and hoping, or should I cut my losses now?” And there’s no reliable crystal ball to tell anyone when a rising share has peaked.

The problem that causes both these mistakes to happen is simple: Ordinary investors let their emotions rule them.

And the only way you’re ever going to join the highest echelon of the world’s best investors is to strip all emotions out of your decisions.

Greed… fear… worry… nervousness — all these feelings have to go.

Here’s how to remove your emotions from investing

While you’ll never be able to sell at the peak each and every time you invest, or ensure that you never buy a stock that subsequently falls dramatically, there is a secret weapon that is proven to get you the lion’s share of any move.

When you buy a stock, you buy it with the intention to sell it for a profit sometime in the future.

In order to do so successfully, you should put as much thought into planning your exit strategy as you put into the research that motivates you to buy the investment in the first place.

This is the trailing stop loss strategy.

A stop loss price is a predetermined price at which you plan to sell a share if it drops that low. Say a 25% stop loss. And you can trail that stop loss behind the share price.

That means if a share hits a new high of R200 and you have a 25% trailing stop loss on it, you would sell the stock if it dropped to R150.

All great traders and investors consistently cut losses short and let their profits run. And trailing stops are one of the easiest and most effective ways of doing that. The technique works very well.

So there you have it, how to never, ever lose big money in the stock market.

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