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[alexed]

I think everyone should read this newsletter!It might help.


Purepennies.com - The Web's Penny Portal Site - http://www.purepennies.com

12.18.00

Good Afternoon All and Welcome New Members!

As we get closer to closing this year out I can't
help but think how can we, as traders, protect
ourselves from future trades in the next coming
year. I thought that I would write about one way
that I limit my exposure to loss in the market when
I trade. I'll give you the reasons and thinking behind
my maneuvers, it should help make some better traders.

We hear about limit loss but some really never practice
it. AS A RULE we all should... and I do. This year, as bad as
it has been I'm sure it would have afforded some more than one
opportunity to limit loss. I'll explain.

Anytime when I'm in a issue and it starts to slide there are
several things that I look for when the bottom starts to give out.
How much selling pressure is there? Is there a lot of selling and
what is the size of the blocks? Coupled with Level II I determine
if my RULE will come into play.

THAT RULE IS: 10% SLIDE and I SELL. It doesn't matter if "I think" it'll
rebound and do great things. Sell. What this does is that you'll never
be stuck in a stock "hoping" at best to get out at break even - let
alone make a profit. It doesn't tie up "working capital". If a stock
has enough momentum to slide 10% chances are it will continue.
Now here's some scenario strategies. I really like the company...
but I sold. The stock when first bought was .15. I sold at .135 give
or take when the mm's finally filled me. Stock lands and settles at
.10 I can buy back in at that point. Better my average... make
my loss back and then some if it retraces back up to .15 or better.

Another...
A friend one time told me about a "hot tip". The stock was
at .48 and was an "easy double" from here. I bought. Well
as soon as I did the issue started to drop (they always do right
when I buy... at least it seems like it :) .47, .465, .45 ah hell I said...
you get the picture... it hit my 10% slide rule. I had to follow my
rule no matter how hard it is for me to take a hit,
a loss, I sold. I'm glad I did. That stock eventually went to a penny
or two then disappeared into PINK LAND. Gone. I limited my loss
and PRESERVED my working capital. I did later on ask my friend
which way the double was suppose to be... :)


LOCKING IN PROFITS
The 10% slide rule is not only for LIMITED LOSS but also
LOCKING in PROFITS. I was in a stock that I bought at .20.
It was making it's way up nicely until the buying pressure
slowed at .27 and the mm's slowed in tandem. MM's shuffled on level
II to take it down... the big question comes into mind what do I do?!?
MM shakeout? Or will it be a true retracement down? So lets say that
it hits .24 and I sell. I LOCKED in .04 profit. Lets also say that I sold
at .24 and that's as far as the mm's take it... so what. I can always
buy it back if the mm shuffle on Level II shapes up. So the mm's shake
me out (with a profit) but I'm smart enough to recognize that it was
a shake out and that they will bring it back up.. so I buy back in.
End result: I LOCKED in profit in either scenario. If it continues down
I made out. If it stops and starts back up... I can jump back in to
continue hopefully to lock in further profit.

There are some trading rules that can be bent. I hardly
ever bend this rule. I follow it as religiously as I can. More
than once it has saved my bank roll. I'll never leave my
money in a stock "hoping" that it'll retrace to get me out.
I don't want to be in a position that has me at the mercy
of the mm, market or negative flow out of a stock. This
scenario is all to common is this market we've seen.

The 10% figure is one that I am comfortable with. A percentage
any less would shake me out of a stock to soon and a percentage
anymore would cause a bigger loss. I feel that 10% is enough of a
swing to indicate a strong signal of directional trending.

Use this rule. Don't use the "shoulda, coulda, woulda rule".
Limit loss or Lock in Profits. If it retraces up and you like
the company you can always add back into your position
in that company. Set your limit loss rule to a percentage
that fits your comfort zone. Adjust it as you go along.
Any good trader will tell you that a surgical loss limit strategy
is as important as trading strategies for gains.

Can't always watch a stock? That's what GTC's are for.

If you feel this information and trading strategy is useful...
forward it to a friend... post it on a board... help others
become better traders.

http:// www.purepennies.com

We've added more useful content at Purepennies.com.
Also you'll find Christmas colors to bring in the spirit of this
holiday season.

Finally, let me know in the coming year
if you had to use this rule and it saved
your bum. Thanks!

Happy Holidays,
DS




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