See more Stock Trading: Free Penny Stock Trading - Time-Tested Stock Entry And Exit Strategies

Stock Trading Promo: Free Penny Stock Trading - Time-Tested Stock Entry and Exit Strategies

Every savvy trader knows that without an exit strategy, you're doomed. After trading in the market for 45 years, I feel I know a thing or two about exit strategies.

First and foremost, don't fall in love with a stock. I've seen so many colleagues over the years search and search for the "perfect" stock, and so fall in love with it that they hold on to it all the way down, down and down. They can't believe their perfect stock is dropping like it is. Do they sell? No! They buy more! They dollar-cost average. They call all of their buddies and tell them what a bargain it is.

Sometimes they're right. But sadly, more often than not, they get burned. To be successful, you need to close your trades out as winners. It's that simple.

Here's how you do it:

For starters, never put more than 5-10% of your portfolio into any single stock. I don't care if it's the next Apple, the stock-pick-of-a-lifetime, a stock "guaranteed" to triple in the next six months, or a sleeper company that just signed a $1 billion contract with the Saudis. Don't do it.

Secondly, when you buy the stock, put a 5% trailing stop on it. At 5% invested per stock, you'll end up with 20 stocks in your portfolio. With 5% stops, if one sells, what do you have left? -- 99.75% of your portfolio, that's what. Some investors are comfortable with 10% in a stock, some at 7 %. It's up to you. But you still want to split up your money equally among all of your holdings as a rule of thumb.

Remember, just because a stop triggers a sale on one of your stocks, it doesn't mean you can't buy it back. Sometimes I do, sometimes I don't. Maybe it just moved with the market, or spiked down and came right back up. More often than not, you'll be buying it back cheaper than your sell price.

It hurts to have to buy a stock back at more than what you just sold it for, but if all the indicators still point to a strong "buy", buy it back. Personally, I'm out seven bucks on the way out, and seven bucks back in, so the commission is never an issue.

The real issue is, are you subconsciously in love with this particular stock, or would you buy it for the first time, here and now, based on today's fundamentals and technicals, if you just now laid eyes on it? Think about that before you click on that "confirm order" button.

Here's an entry strategy you should follow if you want to be successful: Don't place a buy order before the market opens. If you want to buy a stock, wait until around 9:45 to 10 AM ET to see what the stock is doing, and what the overall market is doing.

Here's a second entry strategy: If the stock is down from the previous day's close, don't buy it---period. Focus on momentum stocks for the best overall gains. Again -- buy nothing on the way down. Remember, you're not looking for "action", you're looking for profit. I know, you always hear people say, "Buy on the dip." But how do they know it's going to be a dip vs. a plunge? I can think of twice this year where a stock I was interested in was only down one cent. I didn't buy---not because of the penny, but because of the rule. Both times I was right.

The old adage is true -- fear and greed drive the market. If your prospective buy drops, other people's fear may kick in, (or their stops), which could in turn trigger more fear, and more sell stops. Logically, a strong company's stock should bounce back, yes; but the market is not logical, and you may be waiting a long, long time for that to happen, as in years, decades, or possibly forever.

Regarding the 5% trailing stops, here's a good strategy to lock in more of your gains: Tweak your stops. Let's say you want to lock in a minimum 4% gain on every trade. When the stock has gained 6%, tighten your stop to 2%. Remember, however, that a stock can dip right past your stop, and sell lower. When it dips past your stop, your stop order basically becomes a market order.

Another scenario is when a stock opens less than your stop order. Again, your stop order becomes a market order, and the sale executes. These type of situations are inevitable, but thankfully, not all that common. Typically your stop trigger will execute the stock sale at or near your trigger price.

Spend a little time every evening looking over your portfolio, even if it's only 20 minutes a day. Treat it like a second job, and it will reward you with a second income.

Inevitably, you will have a few losses now and then. But stick to the rules, close your trades out as winners, don't get greedy, and you'll do fine. Sit back and watch your money grow. And one more thing --never trade on a hunch.

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