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Trading Rules - 7% Loss

|Includes: Tesla, Inc. (TSLA)

I have been working on putting together my set of rules and keep finding common and reiterated themes in my research.  Below are statements of common but solid advice:

7% Loss -- Cut losses at 7% to 10% on any position.  When possible use a stop loss to automatically sell all or a portion at this point.

Case in point: I recently invested in TSLA which was on a major upswing during the time of investment.  It is an exciting idea, high end electric cars!  They have also been in talks with Toyota to share their patent and IP.  Well, my exuberance to get in and the rising price made me jump in, but I also put in a 7% stop loss based on some materials I recently read from IDB.  The stock started falling about 5 days after my purchase on 12/14/2011.  It kept then crept up and starting falling again.  Which led me to some concern, then crashed through the 50 day average mark.  At this time I just could not believe it was falling like a rock and was actually feeling some anxiety over the trade.  I was on the phone and my monitor was up when the sell order instantly executed.  Instant relief, satisfaction and lesson learned.   The lesson learned part made me feel particularly good.  I only lost about 70 dollars, but this is the same cost of a class on the subject anyway and now my capital is free for other ideas.

Risk Factors: There is a risk if the market is falling quickly that the stop loss will not execute automatically (that is what Chuck said).  There is also danger of a "flash crash" wiping out the entire position.  There is also a risk that the gap lower is temporary and will fill within hours or days. 

That is a wrap for today.