Graph Paper

Last month, I wrote about the importance of the sale, when it comes to money in the investment markets.

Simply said, even the best investment in the world they lose the appeal sooner or later. If that happens, or when another investment looks even more inviting and potentially profitable, a reallocation of capital include the sale and moving on.

Of course, the other side: capital protection. Either your investment has increased significantly and you do not want to lose the gains made, or the price drops, and you want to protect the initial capital invested. Either scenario involves the monitoring of your investment and a sale, if you start to nervous.

The easiest way to protect your capital in an investment in shares or funds from one way is to use a "stop-loss' Quite .

just a stop-loss is a mechanical way of triggering a sale. For example, if you buy shares at 100p and do not want to lose too much if they fall, and you are /were wrong to set limits on the You sell, is a sensible solution. You might have set that limit to 10% and 15%. That would mean the shares should fall to 90p or 85p, you are automatically sell.

This has some good and bad characteristics as a system. Firstly, it is difficult to apply to shares, which are extremely volatile. If the shares often move of 5% or more in one week and a stop-loss record too closely linked to the current price, it could be forced to sell when you would rather not. Under these circumstances, a ceiling of 20% or more can be more appropriate.

On the plus side, if you really need to protect your capital at all costs, sell if the price move against It is an important means to protect themselves. Sure, you can guarantee that 10% lose, but if prices continue to drop, you've saved a lot of money indeed. Share often rise or fall into a rather predictable ways -- When things are good and a company is growing and generating good profits, prices rise and rise. But if things are bleak and losses to be taken in the fall can last for months or years and massive quantities can be wiped from a company & # 39;'s value.

It therefore makes sense to try and benefit from this trend, this is the reason why many people with a "trailing stop-loss". This is an active track in share prices and performance and is designed to give you ( and I quote a very famous saying investment) "run your profits and cut your losses' .

To use a trailing stop-loss, a number of points or percent below your current share price. This is your minimum - the automatic trigger to sell if the price is injured. However, the share price rises, your stop-loss movement upwards in the same proportion as the share price. So, you still will trigger (for example) 15% below the current price, but that will be higher than it once was.

The above a price, the more the trigger is reset. This has the effect of locking in the majority of your profits. If the price to the contrary, you sell in your new higher level, but if the price keeps rising and rising, you will benefit from the gains.

Now course, if I just explained above in a few paragraphs, it is far too easy for Fund managers and investment bankers to the following. They have complex computer programs that calculate how a price in comparison to an index, a sector and the rest of the portfolio. The decisions are much more complex. This is of course for Pro's, that dozens management of shares and not as we manage that a few at a time. But for the management of a few at a time, the above is a simple and effective way to lose a lot less profitable and more in the market.

If you really want to see him in action, the best thing I can recommend is to find a few sheets of graph paper, draw a curve and restart after one shares every day. Add the stop-loss at, say, 10% below the current price and keep the graphics of a few weeks. Every time when the shares hit a new peak, increase the stop-loss. If the share price stays the same or fall only a plot extra day without changing the stop-loss. Pretty soon it will all be very clear and remarkably easy to operate.

Stuart Langridge is a financial planning consultant to expatriates in the Benelux region. To subscribe to his free monthly email newsletter and receive a free 70 page ebook about financial planning, please click on the following link: http://www.freefinancialguide.com/dt/t.php?cid=31&ad=AD_NAME_HERE&cpc=0

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