How to avoid losses? Or how to make your advisor work for you?
Wait? You mean I don't have to stay in a position if it sinks way down for 6 months and I'm just waiting for it to recover and get out. It's kind of the worst feeling. You got in on a trend and the trend broke shorter than you expected and now you have a choice to cut the rope or play the waiting game. Or you may have zero knowledge that the funds your advisor put you in are even sinking that low just happy if you have a return within the year.
What if I told you there was a third option? The way of least resistance. Whaaaaa?
What if I told you there are things you can request your advisor to do having this knowledge?
Well, 'this is for you' (a la Wet Hot American Summer style).
Yes. There is a way and can help out in volatile markets like the one that may be heading our way.
It's a simple phrase. Stop Loss. Or we can get fancy and have a Trailing Stop Loss. This phrase will make your stocks and your advisor work for you in a really great way.
Let's use a recent example:
Let's say that you bought Apple at 202pts - see the left green line. Now you are in and riding the wave up and down into earnings and out of earnings. In order to lock profits in you can create a stop loss additionally that stop loss can be a trailing stop loss.
Now let's be smart about this. You enter in at 202 and say I don't want to risk a loss greater than 12pts which means at the time of entry you exit if it happened drop to 190 (because it could have flipped on you). Now to take advantage of a potential climb you can have a trailing stop loss of 12pts. This means as it continues to climb at any point that it drops 12 pts from the existing high you will sell the contracts.
With something like this within the first few days of August you have secured a profit. From there you are able to glide thru September without the worry of a loss and into October.
Once we hit October the peak was at 238pt and the stop loss triggers at 226pt. You are out of position and the last few days are lower than the position that you stopped out on.
This allows you to preserve profits and to avoid heavy losses. If you wanted to enter back in you have the ability to do that or wait and see how the markets breathe post earnings.
Overall, I'd recommend those with advisors or going solo to consider this to avoid volatility and preserve the money stack!
AND NOW FOR THE TALLY
As mentioned, we are keeping track on our progress on a quarterly basis. I'm including Apple and Morgan Stanley to the list.
Apple - +10.5%
Morgan Stanley - +23.5%
Alright, now reach out to your advisor and ask about stop losses as these last few days pushed markets up to new limits.
Til next time
Jamie