Stock Trading Strategies > Investment Plans

Strategic Plan For Investing - What's Your Personal Investment Plan?

Its so easy today to invest in the stock market. Place your order, press submit and you instantly can become a shareholder. Ask any officer of a publicly traded company, and they will tell you, they love when shareholders buy and hold. This helps the price of the stock retain its value (instead of selling their shares like everyone else, they hold, avoiding an even larger drop in share price). While you probably wouldn't consider driving downhill without brakes, why would you buy and hold onto a company that is losing you money? This is where an investment plan comes in.

Why Buy And Hold Does Not Produce The Results You Think They Will

One of the most important elements of an investment plan is the stock loss order. Basically, its a set of directions that govern the sale of your stock if a specific condition is met. Generally your stop loss order is executed when the price falls below a certain point, or if a specific chart pattern develops. While it wont protect you from a loss, it does protect you from losing more money, and most importantly, it takes the emotion out of the equation. Think of it as the last line of protection. Its also a smart idea to raise your stock loss price higher as the value of your shares moves higher. This will help protect the maximum amount of profit for you.

Many people will reason that Warren Buffet is a buy and hold investor. This is not entirely true. Mr. Buffet is wise enough to leverage controlling interests in the companies that he purchases. In this role he has the power to make important decisions about whom will make the financial decisions within the firm. He also has the power needed in order to remove dead weight or inefficiency in this particular capacity as well. If you are buying shares and do not have controlling interest in the company for which you are investing the only recourse you have when you don't like financial or business related decisions made by the company is to sell and invest your capital elsewhere.

When public companies declare bankruptcy it is quite rare that stockholders will receive any kind of compensation whatsoever. Stop-loss orders are a great way to prevent this from occurring.

There are some 'loss-recovery' methods that can be taken. The best thing you can do in order to protect your investment is to put a stop-loss order on the stocks your purchase. You can even select the percentages at which you would like the order to kick in. If you are hoping to protect your investment a stop-loss order is the most likely method for doing so.

Here's a great saying that should help you remember the important of a stop-loss order: "If the smart money has sold and moved on, what type of money still owns the stock?"