- Jul 15, 2014
- 28,688
- 47,723
I would only add these simple rules, whether long or short, to augment what FF said, and if you aren't doing them now, you are really just playing around...Hindsight is 20/20, so in the case of BA knowing that the dividend had been cut and the likelihood of government intervention was coming, selling for a profit would not have been a bad thing. But since you say you are more of a long term guy, I personally subscribe to the school of if the stock doubles from my price, I sell 1/2, no questions asked. That returns all of your original investment. Hold the rest and whatever happens is gravy. You could even put in a stop for the second 1/2 and never look at it again.
- Know what price you want to get IN at... before you buy. You shouldn't be entering at "market" other than in very, very rare circumstances.
- Know what your target price is to get OUT at... before you guy. You shouldn't be exiting at "market" other than in very, very rare circumstances.
- You should set a stop loss (whether long or short) at your time of entry, and, if the initial SL isn't triggered, you should adjust that stop loss as the position moves in the direction you anticipated so as to protect your gains. If you are "lazy", you can set a "trailing SL." ONE WARNING ABOUT STOP LOSES: and I learned this from a guy back when algorithms really began to dominate the markets. He said, "Stop setting stop losses! The truly HUGE houses will often take a HUGE position (long or short) for a nanosecond to blow out all us "retail" investors Stop Losses because they know what traditional and/or technical level are for stop losses. This nanosecond trade triggers ALL of our stop losses, and in the next nanosecond, they take the opposite position at a massively favorable price, then the position continues on as normal and we are left looking at a screen that has a MASSIVE nanosecond spike in volume while shaking our heads saying 'WTF just happened?!?!?!;" Instead, most platforms will let you set an ALERT in the same fashion as a Stop Loss. Use ALERTS at your Stop Loss levels and you get a text, you can quickly assess whether or not you truly want/need to exit a position, or be able to say, "Fukkers just did it again!" but you are still in your position instead of stopped out and likely crying.
- FF said his rule is if the position doubles, he takes 50% off. My twist is this: if your position hits the target price you set on DAY ONE, when you entered the position, you REASSESS the situation, and if all the conditions are still there, then take 50% off and let the other 50% ride. If you hit your target, but conditions for the position have changed, exit the full 100% and move on to the next opportunity.