You never heard that one before and I can almost guarantee your broker did not say it. As a professional trader with many years of floor trading experience I know of no pro that does not have an exit strategy. You cannot make money without it.

About 99% of investors who buy a stock or mutual fund have no clue when to sell. Buying is nowhere as important as selling. Selling is the key to success in the market.

Poor ole Joe Sixpack watches his stock go down and down and thinks he will sell when it come back up so he can get out “even”. Even is for is for losers.

Stops are easy. There are many kinds and many brokerage companies do not let customers place certain types. I will not discuss all of them here, but list give you the single most important ones.

The are regular Stops, Stop Limits, Stop Sells and Stop Buys. Most brokers won’t take an OCO. That’s O.C.O. One Cancels the Other. ABC is trading at $8.00 and the chart pattern is coming to completion and will break out to the upside or collapse. The trader is not sure so he enters an order to buy ABC on a stop at $8.11 and a second order the sell ABC short at $7.89 OCO. He is now positioned and ready for the move that will come either up or down. Few brokers will take this order. If you have a position in ABC you might place the order to sell at $8.08 or MOC OCO. MOC is Market On Close.

The simple order everyone should learn to use is the STOP.

You own ABC at $8.00 and you have set your loss limit at 10%. If the price drops to 7.20 and trades there you will be filled at the next available price. It might be at your 7.20 or lower, but you will be out. You can request a TRAILING STOP which the broker is required to watch. As the price advances so does your stop staying within the 10% range. Once it is moved higher it is not lowered. If it shot up to $10.00 your stop would automatically be raised to $9.00. The trader does not have to watch his position and can trade other equities knowing he is protected from a major loss on his other positions.

The investor can make his stop a LIMIT STOP meaning this order must be filled at his price and no lower (or higher in the case of a BUY STOP). The drawback to this is if the equity opens thru the stop he might not be filled at all. Even if his execution is worse than he wants it is my opinion it is better to be out wishing you were in then in wishing you were out.

Whatever stops you choose you will find they will protect your account from major losses.

Never invest without a stop.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2006 All rights reserved.

Copyright 2006 Albert W. Thomas All rights reserved. Author of "IF IT DOESN'T GO UP, DON'T BUY IT!"