Stopping losses and taking profits – some surprising info that may make you rethink other investing strategies.
Most investing strategies use what are called stop losses as a way of controlling potential losses. Stop-losses are an order placed with a broker set to sell a security when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a security position.
For most strategies stop-losses are a required part of risk management. The Summerland Alert model differs by specifically avoiding stop losses. The reason is that the scaling-in approach covered in the previous lesson and integrated into the alerts negates the need for stop-losses. The Summerland model seeks trends with high probabilities of success. If an initial entry point fails, price will move to a better buying opportunity. As each new buying opportunity in a given equity presents itself, the value invested increases.
Stop-losses are contrary to the scaling-in approach because they lock in losses prematurely. It takes time for an alert to complete the alert cycle. Sometimes initial losses are an expected part of the process as the market eventually turns in the direction of the alert. The Summerland model incorporates all of this when sending a closing alert.
And while many strategies incorporate stop-loss rules as a risk management strategy, few have clearly defined rules for taking profits. This is tough on the investor as a sound strategy should always offer clear processes for both the entry and exit of a position. Exit rules can be as varied and complicated as entry rules. The Summerland Alerts incorporate complex profit taking rules as a part of the alert analysis. Profits are paramount and the alerts are designed to take profits aggressively.
Since profit taking is managed from an aggressive perspective, there is a high likelihood that they will be taken even if the trend could still result in generating more profits.. It is better to profit consistently than let profits run too long and turn into losses. This is a mantra at Summerland Associates. Part of the reason Summerland Alerts have provided an 80%+ win rate is due to the aggressive profit taking model.
It is a fact that all methods will generate losses. Yet, the potential can be managed. Through the careful implementation of the various techniques utilized as a part of the Summerland Alerts, profits should exceed losses over time.
