American Consequences - March 2021

This Melt Down will be brutal too. It could last for years... which means investors are potentially facing years of poor returns. This could be the last chance many of us get to make irrational gains in the U.S. market. Another thing you must understand is this: There is no foolproof signal for the start of the Melt Down. Stocks start to fall, and people get excited that they can buy more of their favorite names even cheaper. Most people will be extremely tempted to buy more when stocks start to fall. That is the wrong thing to do. I realize you are excited about the market... and about the gains you’ve been making. But don’t let that get in the way of your clear thinking. It’s more important now than ever to have a “cool head” in today’s market.

What Is a "Trailing Stop"?

Buying stocks is easy... It’s knowing when to sell that’s the hard part.

A “trailing stop” sets the stop-loss price (that is, the price at which you should sell) at a fixed percentage amount below the current market price of a stock. It’s called a “trailing” stop because the stop-loss price follows the market price of a stock upward like a trail. So, as the stock’s market price rises, the stop-loss price rises by the trail percentage amount. But if the stock price falls, the stop-loss price doesn't change, and you sell when the stop price is hit. A straightforward form of the trailing- stop strategy is a 25% rule. Sell any and all positions at 25% off their highs. For example, if you buy a stock at $50, and it rises to $100, when do you sell it? If it closes below $75 – no matter what.


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American Consequences


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