Using A Stop Loss With The Stock Trading Riches System

The Stock Trading Riches system is designed to take advantage of stocks that are down in price. Falling prices are our friend. That is why the basic system does not use a stop loss.

I think the system has enough of a safety net because we buy low, take profits, diversify, and can always replace stocks that are no longer fundamentally sound.

However, in my book, I have an optional stop loss rule because there are many people who feel uncomfortable buying a stock that is down.

I think a fundamental stop is much more valuable than a strict mechanical stop. Before you rebalance stocks that are down, take time to read up on them, to see if there are fundamental reasons you don't want to continue to own the stocks.

For example, I had 2 deep divers for many years - Lucent and Nortel. Over three years, I only had buys, no sells, on them.

When I went to rebalance them at the end of 2008, I searched for info on them. I read lots of talk about Nortel filing for bankruptcy and whether the Canadian government would prevent it.

So, I ended up keeping Lucent and replacing Nortel. Lucent has since came back, while Nortel did go bankrupt.