Trading is risky. Without the proper precautions you can lose everything. We take the risk out. Our system provides infinite gains
but limits your losses, even in today's tough economic environment.

There are two key elements to reducing risk:

1. Limit the number of losers you pick
2. Limit the amount of loss you can face on any particular investment

Everyone focuses their energy on what stocks to buy and what price they will pay for them. We are very different in that we also focus on when and at what price will we sell our stocks if they turn against us and become a loser. 

 

This is all done with The Stock Playbook before we even invest in the stock. Making money in the stock market is not entirely about how much money you make on any given trade. It is just as much about how much money you lose when you are wrong. 

 

And we can guarantee you that sometimes you'll lose money. And if you’re lucky, you’ll only lose half the time. You want to be wrong as little as possible, but realize that when you are wrong the key to trading is to keep your losses to a minimum.

 

“…the key to trading is to keep your losses to a minimum”

 

This one rule is what separates the professional from the average investor.

 

Let's imagine you just bought a stock at $23, because they just announced great earnings or perhaps they just received FDA approval for a new drug. 13 days later your stock drops to $20 on an analysts’ downgrade or any of the numerous reasons that will make a stock head lower.

 

The professional investor made up his mind the day he bought the stock at $23 that his maximum downside was 10%, so when the stock traded at $20.70, he sold it. It is still the same great company that it was the day he bought it, but the trade is going against him and he has the discipline to get out and move on.

 

There is no need to search for answers to why the stock is heading lower. The bottom line is that if the stock isn’t going up...get out. The average investor will make every excuse for why the stock is heading lower and will rationalize that he will get out when it bounces back to $23 or even worse, buy more to lower his cost average. Buying more when your stock drops often leads to more losses.

 

“Buying more when your stock drops often leads to
more losses”

 

Now, you are throwing good money after bad money, instead of just selling it and getting out. You need to face the truth in this case. The stock that you purchased for $23.00 may not ever reach that level again. If you don’t believe me, ask the shareholders of Enron, Worldcom, Lucent or more recently, shareholders that bought Citigroup during October of 2007 at $45 because it was at a new low and cheap. Today it trades under $20.

 

Are you capable of making money in the stock market?

Answer this question. You’re in Vegas for the Superbowl and make a large bet on the Patriots to win outright. At halftime the Patriots are losing 24-3.  Your bookie calls and says, I will gladly give you 90% of your wager back right now to cancel the bet. Do you take the money? 

 

If your answer is "no" to that question, then I can’t help you in the market and no one else can either. Gambling is not the mentality needed to master the markets. Could the Patriots come back and win, absolutely, just like a stock can turn around and rally. But the odds are now against you, just like when you buy a stock and it heads lower.

 

We buy stocks to see them trade higher, if they head lower, that is your first clue that you may be wrong, and everyone is wrong sometimes. So minimize your losses and live to fight another day.  That is the key to making money in the stock market.