How to Avoid Big Losses in a Crazy Market
Andy Snyder|January 12, 2022
“If the tide gets to those rocks, we’re out of here,” we told the old man.
In Alaska, we used the big tides to our advantage. When the water got sucked out at low tide, we put the boats on grids and got to work on their hulls.
If we did it right, we could be out before the water rose and floated the boats once again.
But the old man didn’t listen.
“I’ve got just one more weld to make,” he said.
It was a tough weld. And like all tough things, it took longer than he expected. Next thing he knew, each time he sparked an arc, he got shocked. The water was now touching his ankles and the aluminum hull he had crawled under.
The tide was surging in and he had no way out… so he had to dive beneath the hull and go for a swim.
He should have stuck to the plan and gotten out when the tide hit the rocks.
Avoid the Losers
We’ve all been there. In fact, many folks might be there right now with the stock market.
The Nasdaq has dropped nearly 10% from its all-time highs. Plenty of high-tech stocks on it have fallen further.
Plus, rate hikes are coming, inflation is stretching the nation’s economy and fears of a slowdown are growing. The action has plenty of investors wondering if they should get out of the market.
You know our answer…
No!
If you were complaining prices were too high a month ago… here’s your discount.
Do your best and most aggressive work when the water is low. But pick your rock and get out when the water starts lapping at it.
The rocks in the water were the old man’s exit strategy. When they got wet, he still had time to get out safely. But, just like many stubborn investors, he hung around. He convinced himself he could make one more weld and finish the job.
The mentality for investors is much the same. When stocks are losing value, it’s easy to get caught up in head games.
“The market is wrong,” we tell ourselves. “This one has to go higher again soon.”
“I’ll hold on for one more day,” we say. “I just know a big headline is coming.”
It’s a trap… a dangerous trap.
It’s why we tell folks to always know how they’ll get out of a play before they even enter it.
The Easy Plan
For almost all of our positions, a simple trailing stop is the answer. You’ve surely heard us talk about trading stops before. Just this week, Alpha Money Flow subscribers used the strategy to lock in a 70%-plus gain.
The strategy allows us to maximize our gains… without having to worry about when to sell. When the stock dips to our predetermined exit price (typically 25% below the high while we held it), we sell.
If it doesn’t dip… we don’t sell.
It’s that simple.
The strategy has been proven over and over again. It eliminates emotion. It enhances the risk-to-reward ratio. And it ensures our losses are never allowed to swallow us up. The most we can lose is a quarter of our initial stake… and that’s if things go very wrong.
We’ve got a video on the subject posted over at our Manward Trading Academy. You can watch it here.
If you’re not using this strategy yet… 2022 looks like a darn good time to start.
Be well,
Andy
P.S. Don’t forget about the special note we sent you yesterday. Our annual “Big Prediction” issue just went to press, and we’re calling for a recession in the second half of the year. The facts are clear. To help you prepare for what’s ahead, we’re offering a full-year subscription to Manward Letter for just $39.
It’s our best-priced deal… and it won’t be around for long.
