If you’re a sports fan, I’m sure you’ve heard: Offense wins games, defense wins championships!
Risk management is your defense!
One of the risk management tools is called the “stop loss.” A stop loss does just what it says: It stops the loss in your investment by either manually or automatically selling your stock, ETF, mutual fund, or stock option.
Stop losses are essential if you want to live to trade another day. Due to the worst start of the year in stock market history, this week I did something I rarely have had to do in all of the 17 years I’ve been trading in the market. I had to trigger my stop losses, transferring my money from stocks and ETFs to Cash.
Risk management is an essential part of my systematic approach. This is what separates me from the average investor. I don’t invest or trade based on emotion. And most importantly I know how much I am willing to risk losing BEFORE I enter the trade. My stop losses for long term investing are set at 20%. This means that after a new high, if my investments drop 20% in value, I sell. No second thoughts.
Many prefer to let their investments free fall in hopes that it will recover in the long term. While I respect their choice, I also disagree 100%. I protected my profits from any further losses. And I promise you I am sleeping more peacefully than most as a result.
As we enter a potential bear market, I will alter my approach to be profitable in a bear market. If you want to learn more about my approach in a bear market, feel free to contact me via the Contact Us tab.
And remember this, ladies: education is the ultimate risk management tool!
Peace and prosperity to you!
P.S. – Ladies, if you want to be a better than average investor, please share this post with the women in your lives who are important to you!