Get Out of Your Own Way

One simple change you have to make…

Note from Michael Salvatore, Editor, TradeSmith Daily: Last week's idea summit in D.C. was an incredible look into the very talented minds that make up TradeSmith and our extended network. But it was also a time to reflect on the principles that make TradeSmith the amazing place it is. During Day 2 of the summit, CEO Keith Kaplan told the story of the early days of TradeSmith, and how he helped create the flagship software that's charted our path ever since. Inspired by that story, I tracked down this essay from Keith from a couple years back. It's a fantastic reminder of TradeSmith's guiding light – making it easy for you to take the emotion out of investing, and ensuring you get the best possible result whether you follow your own investing ideas or ours. Read on... How the World's Best Investors Get Out of Their Own Way By Keith Kaplan, CEO, TradeSmith Daily I can say with 100% certainty that YOU are an emotional being. And you're not alone. I can be emotional, too. We all can... and it's only natural in certain situations. But if you're making emotional decisions about your investments, it's almost certainly costing you money. You see, I believe most investors are actually pretty great at picking stocks. But they're still terrible investors. In the past, I would've said that about myself, too. (And I had the track record to prove it.) Just think about this for a minute... When you buy a great stock, how do you decide when you'll sell it? If you're like most folks, you probably don't give it much thought. But this isn't the type of decision you want to leave up to your "gut." When it comes to investing, you must have a clear exit strategy for every investment you own. This is what separates the masses of investors who match or underperform the market... and the rare few who beat it every single year. Today, I'll show you an exit strategy that's been working for me and TradeSmith readers for many years. Through the Financial Crisis of 2008, the COVID meltdown (and recovery), and whatever may come next, this strategy never fails. It's something the world's best investors use consistently to "get out of their own way" and listen to reason rather than emotions. And it's something you can start implementing in the next 10 minutes after you finish reading this email... RECOMMENDED LINK Charlie Shrem: "The Crypto Melt-Up has begun." Crypto pioneer Charlie Shrem says a massive Melt-Up in crypto has begun. It could drive Bitcoin to $1 million. History shows that smaller altcoins could soar as high as 134X, 646X, or more. Click here to find out which five coins Charlie thinks you should buy right now. Stop Losses: The Emotion Eraser Here at TradeSmith, we love using stop losses. A stop loss is simply the price at which you decide to sell an investment below its current price. When you set a stop in your brokerage account, you're putting in an advance order to sell automatically at that pre-determined price and minimize losses. But even more powerful is the trailing stop loss. With trailing stops, as the price of an investment rises, the stop price "trails" or follows it higher. But if the price falls, the stop price stays the same. It never moves lower. Say you bought a share of ABC stock at $10. You set your trailing stop at 20% below its closing price. Then, the stock doubles to $20. That means your exit plan is no longer $8... but $16. If or when your investment closes below the trailing stop price, you simply sell and wait for signs of a new uptrend before getting back in. This means trailing stops can not only protect you from big losses in your worst-performing investments, but they can also help you "lock in" gains and realize even bigger returns from your winners. This simple strategy erases all the emotions from your investing strategy, so you can sleep well at night. In other words, trailing stops are about as close to the "perfect" exit strategy as you're likely to find. And we personally use and recommend them for just about every public-market investment out there, including individual stocks, exchange-traded funds (ETFs), most stock and bond mutual funds, and even options. The only issue with this is one size doesn't fit all. Volatile stocks, like Tesla (TSLA) for example, are much more prone to dropping 20% than something like, Johnson & Johnson (JNJ). But if you sold TSLA whenever it fell 20% and bought back in whenever it formed a new uptrend, you'd be in and out of the stock constantly. It's a headache... and a bad investment plan. So here at TradeSmith, we decided to take this risk management technique a big step further. RECOMMENDED LINK Elon Musk's NEW A.I. Project "Will Be Bigger Than Tesla" One of Silicon Valley's legendary investors traveled all the way to Elon Musk's Tesla Gigafactory to discover his next huge AI project. Something he's calling Elon's "A.I. 2.0." And Elon's very own words... "[A.I. 2.0] will be even bigger than Tesla." If you position yourself correct now, before Elon makes the official public announcement... You could set yourself up to achieve generational wealth. Click here now to get all of the information How TradeSmith Perfected the Trailing Stop Here at TradeSmith, we recommend our readers use a different kind of trailing stop to make sure they stay in great, if volatile positions... and cut losses that are unusually large, which could lead to prolonged downtrends. This comes down to what we call the Volatility Quotient or "VQ" of each individual stock. The VQ is a proprietary metric we've developed that considers each stock's individual behavior before recommending a stop. It's easiest to show you how it works with an example. Back in 2016 – before I joined TradeSmith and long before I became its CEO and the investor I am today – I bought stock in a company you might have heard of called Advanced Micro Devices (AMD). I thought the market had mispriced the stock and I was convinced it would quickly head much higher. That's not what happened. It went up a little, then it went down a lot more. I immediately began to second-guess my decision. And when it finally bounced back to near my entry price, I gave up and sold my shares for a small 3.5% loss. A small loss is certainly better than a big one. It could've been worse. But it turns out if I had done absolutely nothing different except use a 25% trailing stop on that stock, the outcome would've been much different. Instead of selling for a 3.5% loss, I would've held on for a 48% gain less than one year later. That's a HUGE improvement. And even better, I could've avoided the emotional rollercoaster that had led me to sell those shares too soon in the first place. But watch this. If I had used a TradeSmith VQ-based trailing stop instead of a 25% trailing stop, I'd have exited in the spring of 2022 for a 1,300% gain. AMD's VQ, as I write, is at 40.45%. That means if you bought AMD today, you should set a trailing stop at that level – no more, no less. That might sound like a steep potential loss. And it would be. But AMD is the kind of stock that has this level of inherent volatility. And if you sell too early during a drawdown, you risk missing out on many years of bigger gains. This is why I say TradeSmith "perfected" the trailing stop. Before, using trailing stops required a little guesswork to figure out what was an appropriate level to sell. But we've taken care of all that guesswork for you. And we've taken all the other hard work off your hands, too, with a portfolio management platform that syncs with your brokerage and automatically shows you the VQ-based trailing stop on all your positions. It's all part of our flagship trade management software, TradeStops. With it, you'll never have to rely on anything but our battle-tested metrics to make sure your portfolio is ready for whatever may come. The Plus tier of TradeStops (details here) also includes another key metric we've developed called the Health Indicator. This tool takes a stock's VQ one step further – and can help you understand if a stock you own is in an uptrend, a downtrend, or stuck in a sideways pattern – and what to do in each scenario. I'd like to invite you to try it out today. I guarantee that if you're struggling with knowing the best time to cut losses or take profits, TradeStops will make a world of difference. All the Best, Keith Kaplan CEO, TradeSmith Get Instant Access Click to read these free reports and automatically sign up for research throughout the week. 25 Doomed Blue Chip Stocks 3 Stocks to Build Your Wealth in 2024 5 Unapologetically Profitable Stocks for 2024 Customer Support: 866.385.2076 |  support@tradesmith.com Request Customer Service ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. 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