| Position Size The most important thing you can do is to set an appropriate position size. If I'm trading an option or penny stock, I assume it will go to zero. (It probably won't, but it's safer to assume that it will, because every once in a while, it does.) So if the most I'm willing to lose on the trade is $2,000, then I will only buy $2,000 worth of the stock or option. For something with intermediate risk like a dividend stock or established growth stock, I may use a 25% trailing stop. If I'm willing to lose $2,000, that means I can invest $8,000, and if it goes down 25% from the start, I'll get stopped out with a $2,000 loss. Use Trailing Stops Trailing stops are excellent tools to limit your losses. They're not perfect - if a stock gaps lower and moves below your stop, your loss could be more than 25%. But generally speaking, they are effective ways of managing risk. For those who are unfamiliar with trailing stops, you simply choose a certain price or percentage below your entry point that represents the amount you're willing to risk. If the stock trades at that price, you sell your position at the next available price. It could be a little lower if the stock is falling hard, or it could be a little higher if the stock upticks. You can also change the stop to protect your profits or lower your risk. For example, perhaps you start with a 25% trailing stop, but as the stock goes higher and you have a decent gain, you tighten it to 10% so that a winner doesn't become a loser. Remember Why You Bought the Stock There's a saying that goes, "Don't let a trade become an investment." It means if you buy a stock because you believe it will rise in the short term, don't hold it long-term if it doesn't go higher. If you bought a stock because you saw a signal from a technical indicator, are trading a certain strategy or system, or even got a hot tip, but then the stock doesn't do what you expect by the time you expect it to, sell the position. Hope is not a good trading strategy. It rarely works out. You can also turn that maxim around. If you bought a stock as an investment to hold for years because you like the company's fundamentals and then it suddenly shoots higher, that doesn't mean you should grab the gains and walk away. Great companies become giant winners in a portfolio. Just because a stock rises 20% in a short period doesn't mean it can't triple or even be a 10-bagger over the years. You never want to cut your winners short if the fundamentals still hold up. Use a trailing stop if you need to, but don't sell a long-term investment just because you have a gain. The best way to improve your investing and trading results is to not lose money. Take the necessary steps to minimize the pain when a stock doesn't do what you want it to. Good investing, Marc | 
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