Parachute Investing

Ever jumped out of an airplane? It's OK if you have on a parachute. Pretty dumb if you don't.

Every buy any stocks, mutual funds or Exchange Traded Funds? It's OK if you know how much you are willing to risk. Pretty dumb if you don't.

Parachute investing is buying an equity with a parachute so you won't risk all your money or, better yet, give back the profit you have made as the stock or fund went up and then goes down. If you bought that hummer at $12 per share and during the past couple of years seen it go up to $52 you don't want to give back that nice profit, do you? With a parachute you can save most of it. How?

When you invest in any stock of fund you must know how much you will risk before you buy it and how much of the profit you are willing to give back when it turns down. Take that beauty at $12. Instead of going up it went down. Are you willing to agonize as it drops to $5? If you had a parachute you would have jumped out of the plane before it crashed. If you had an exit strategy for your stock you would have sold it before you lost a big chunk of your cash.

The secret of a safe investment is an exit strategy. When you bought Mr. Twelve Dollars you shook hands and told him I'd like to be your friend, but if you change your name to Ten Dollars I am leaving. Maybe that that is not very nice, but nice doesn't cut it in the investment world.

Mr. Twelve Dollars said I am going up and I want you for my friend. Please follow me and if I falter you can leave and we will part friends. Now that makes sense. You trail along and after it goes to $52 it does falter. Do you know where you are going to leave or are you going to ride it go back down to $12? In other words do you have your parachute on?

That parachute is your continuing exit strategy that is in place every day. In the investment community it is called an open trailing stop loss order. Any broker can put this in place for you. You might be lucky enough to have a broker who knows where to place stops, but unfortunately there are not many of them.

The brokerage industry does not teach its employees (brokers) how to protect customers' money. If that is the case you might want to use the old standard 10% rule. Have the broker place an open stop every Friday at 10% of the closing price of that day as it closes higher. Never lower the stop loss. Brokers hate this as it makes them work, but that is what they are there for and that is how they earn their commissions.

With your parachute you can always protect your original cash purchase from a big loss and as your stock advances you can lock in profit as the stock advances.

Every investment should have a parachute.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

---

Laws and Efficiencies and Theories of Diminishing Returns

The basis of diminishing return discussions surround such simple notions;... Read More

Overseas Investing: Going Against the Mainstream

TOO OFTEN, INVESTORS SIMPLY CHOOSE TO follow the crowd. This... Read More

Bollinger Bands Strategies

The Bollinger Band theory is designed to depict the volatility... Read More

Why Technical Indicators

The fight continues to rage among traders who use technical... Read More

Direction

It is difficult to make money in a bull market,... Read More

Discipline

One of the great "secrets" of successful people is discipline... Read More

Losses, not Profits, will Stop You from Trading in the Market

Should the market turn against you, it is important that... Read More

Stock Market System ... ONLINE STOCK TRADING ... Beyond Day Trading Basics & Tips

Day trading is all about making buy and sell decisions.... Read More

How To Be A Winner

Everyone who invests in the stock market wants to be... Read More

Quality Investment Information: Standing Firm In the Face of Opposition

THERE'S SOMETHING TO BE SAID FOR standing firm in the... Read More

Investing in the Stock Market

From the book 'The Stockopoly Plan' by the author Charles... Read More

The Stock Market Doesnt Care if You are a Beginner?. Get Prepared to Succeed at Trading

Stock trading remains a very competitive field and the stock... Read More

Pamplona, the Wild Investment Bulls

You remember (they show it on TV every year) the... Read More

Robert Rodriguez Weathers the Stock Market

Robert Rodriguez likes to buy stocks at their lows. When... Read More

Its Better

Question: How does it get better when it gets worse?Last... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Stock Market Insanity

Let's first define insanity. It is doing the same thing... Read More

Downdraft

For the year 2000 we have seen hundreds of mutual... Read More

Trading Tips No 5: Stock Trading Curve Drawdown and Commitment

All stock trading and investing methods must deal with the... Read More

Attitude Is [Almost] Everything

I often play a little game with myself when I... Read More

Making a Stock Watch List

I am taking the time to help others learn the... Read More

How Commodity Trading Differs from Stock Trading

There are major differences between trading stocks and trading futures.... Read More

Buy Low - Sell High

Now where have I heard that before? I know. It... Read More

Time Out

Are you paying any attention to your retirement savings? Do... Read More

Bull or Bear?

Cat or dog? Maybe Zebra. Shucks, I don't know, but... Read More

Series 7 Exam

What is the Series 7 Exam? If you... Read More

What is Involved in Peak Performance Trading?

There is so much involved in developing peak performance, that... Read More

Investment Capital Gains

Have you bought any mutual funds this year or late... Read More

Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 2

Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More

The Secret Method to Selecting a Winning Trading System

Every successful trader has a winning system. There are of... Read More

This Market Is Different

All of the talking heads have been telling us that... Read More

Red, Green, Yellow - or - Stop, Go, Go Very Fast: Which Describes Your Online Trading?

Ever notice how behavior in one area of life can... Read More

Forecasting the Stock Market

Every day I see in the financial section of newspapers... Read More