Taking a Profit and Preserving Capital
An important aspect of the Master Plan is setting a profit target and preserving capital. The approach is fairly conservative – the profit target is approximately 7% with a potential loss capped at 4%. The actual profit is likely to be more than 7% while a loss is likely to be smaller than 4%. Here’s how it works.
• Once the target price is reached (7% above the entry price), half of the shares are sold, locking in a 7% profit. The other shares remain invested to benefit from any further increase in price.
• If the price moves against the trade, the maximum loss tolerated is 4%. This preserves capital for future trades.
• Typically, more trades will produce a profit than a loss. The net result is profit.
• The movement of the entire market is very powerful. When the market is moving with your trades, a very high percentage of your trades will be profitable.
• When the entire market is moving against your trade, a higher than expected percentage of your trades will lose. The stop loss protects you from excessive losses.
