Lower Risk and Higher Gains? It’s Simple

September 1, 2023

Many of the questions we get from new Manward subscribers are about stop losses. What they are? How should they be used? How do you set them up?

We’ve often written that your exit strategy is just as important as your entry strategy. It’s a crucial part of our investing model. In all of our research services – Manward Letter, GVI Investor, Alpha Money Flow and Venture Fortunes – we provide an exit plan whenever we make a recommendation.

However, some folks make things too hard for themselves. They monitor their stops manually… raising or lowering them as their stocks hit milestones.

Life is complicated enough. There’s an easier way to lower your risk of losing money… which is just as important as increasing your chances of making money.

After all, it’s crucial to do both. That means not only targeting setups with big potential rewards… but also limiting your downside risk.

So here’s how to do it…

A stop loss is a set price below a stock’s current price. If a stock hits its stop price, the position is automatically sold. A stop loss limits how much you can lose… but not how much you can gain.

There are many types of stop losses. Some are fixed… while others are more adaptive.

We prefer trailing stops. A trailing stop is set at a fixed percentage below a stock’s purchase price, and it rises alongside the stock as it gains momentum.

For example…

Let’s say we buy a stock for $100 a share and set a 25% trailing stop on it. Our initial stop price would be set at $75… meaning if the stock closed below that price, it would be sold at market.

But suppose the stock moves higher…

Let’s say it closes at $105. Our trailing stop would then automatically rise to $78.75.

If the stock closed below this new stop price… it would get sold at market.

If the stock closed at $115, our stop would rise to $86.25.

And so on. You get the point.

As the value of our position rises, so does its level of protection. In fact… once a stock gains enough steam… a trailing stop even protects part of your profits.

This makes trailing stops a simple – yet powerful – trading tool.

Using stops is a very simple approach to managing risk… and an easy one for most folks to grasp.

We like that.

Trading doesn’t need to be complicated.

Straightforward tactics… like this one… will make you a better trader.

That’s why we use trailing stops.

They’re easy to understand. And they get the job done.

What more can you ask for?