Lesson 14: Lowering Risk
LESSON 14: THE SMART WAY TO LOWER RISK!
There's actually 2 smart ways to lower your risk:
1) Stay out of the market. :) We actually do this quite a bit. We take our profits and leave for awhile until we get a new opportunity we like. This is a huge advantage over the Buy and Hopers. We are only at risk a fraction of the time they are.
2) Stop Losses! This is most important. You can buy $1,000,000 worth of a stock and not have $1,000,000 at risk by using a stop loss. A stop loss is essentially a pre-emptive sell. If you buy a stock at say $20 and you only want to risk 5% of your money, that would be $1 per share if you do the math: $20 times .05, you would put a stop loss at $19.
What this does is, if the stock goes below $19, it automatically sells and you've limited your loss to roughly 5%. So, even though you bought $1,000,000 worth of a $20 stock, you'd only have 5% of that at risk, or $50,000.
You should really have a stop loss on every stock you own. Most people set this on the first of the month and set it as a 'Good til Cancelled' trade. That means it stays active until you turn it off. I warn you, many online sites automatically turn those trades off after 30 days, so be sure to keep checking them.
With the stop loss, you could lock in your profits while letting your stock run. Lets say you wanted to make 2% this month on a stock, we figure out that on a $20 stock for us to make 2% it needs to go to $20.40. The stock goes way up to $21.00 the next day. You COULD put a stop loss at $20.40 and pretty much guarentee you're going to walk away with a roughly 2% gain without selling. If the next day the stock jumps to $22.00 a share, you simply move your stop loss up with it to $21.50 or something. That way, when the stock starts to fall, a sale automatically goes off and you're laughing your way to the bank instead of to the poor house like those 'Investor' people....
And don't forget, since we sold and took a profit, when the stock goes back down to $20 we have more money to buy even more shares to ride the upswing, putting us even further ahead of the 'Investor.'
Something to think about....
There's actually 2 smart ways to lower your risk:
1) Stay out of the market. :) We actually do this quite a bit. We take our profits and leave for awhile until we get a new opportunity we like. This is a huge advantage over the Buy and Hopers. We are only at risk a fraction of the time they are.
2) Stop Losses! This is most important. You can buy $1,000,000 worth of a stock and not have $1,000,000 at risk by using a stop loss. A stop loss is essentially a pre-emptive sell. If you buy a stock at say $20 and you only want to risk 5% of your money, that would be $1 per share if you do the math: $20 times .05, you would put a stop loss at $19.
What this does is, if the stock goes below $19, it automatically sells and you've limited your loss to roughly 5%. So, even though you bought $1,000,000 worth of a $20 stock, you'd only have 5% of that at risk, or $50,000.
You should really have a stop loss on every stock you own. Most people set this on the first of the month and set it as a 'Good til Cancelled' trade. That means it stays active until you turn it off. I warn you, many online sites automatically turn those trades off after 30 days, so be sure to keep checking them.
With the stop loss, you could lock in your profits while letting your stock run. Lets say you wanted to make 2% this month on a stock, we figure out that on a $20 stock for us to make 2% it needs to go to $20.40. The stock goes way up to $21.00 the next day. You COULD put a stop loss at $20.40 and pretty much guarentee you're going to walk away with a roughly 2% gain without selling. If the next day the stock jumps to $22.00 a share, you simply move your stop loss up with it to $21.50 or something. That way, when the stock starts to fall, a sale automatically goes off and you're laughing your way to the bank instead of to the poor house like those 'Investor' people....
And don't forget, since we sold and took a profit, when the stock goes back down to $20 we have more money to buy even more shares to ride the upswing, putting us even further ahead of the 'Investor.'
Something to think about....
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