Let's have a contingency plan in place for the following cases.

Let's have a contingency plan in place for the following cases.

■ Where will you get out when the position goes in the opposite direction?

■ What would you look at when you consider buying back the stock if it comes out of a trade due to loss?

■ What are the specific criteria for realizing a decent profit when the stock is strong?

■ When will you sell to protect your profits when the stock is weak?

■ How to deal with extremely deteriorated situations and sudden fluctuations that require quick and decisive action?

The contingency plan shall include:

a. the first sale price

Before buying a stock, I set the maximum handoff price to exit the transaction when the stock price goes in the opposite direction to my expectations.

When the stock price reaches its sell-off price, I sell it without asking or questioning.

After coming out of the position, you can judge the situation with a clearer mind.

The first hand-off price is important, especially in the early stages of a transaction. When the stock price rises, it increases the selling price and protects the profit with a trailing stop or back stop.

b. re-entry conditions

A stock that has attracted buyers while meeting certain trading requirements may be closed due to a quick or sharp adjustment causing a loss.

This is usually seen when the market is experiencing overall weakness or high volatility. Stocks with strong fundamental requirements often form a base after adjustment and return to their initial state when they met the trading requirements.

Second, when the buying requirements are met, the stock returns after competing with the opposition, and in the process, it is often a stronger buying environment than the first, thanks to the shedding of holders seeking short-term gains.

Don't think that this event has failed just because it has been lost. Don't forget to always protect yourself and reduce your losses, but don't forget to remove the lost item from the list of items of interest.

If a stock has the characteristics of a stock that can potentially yield a large return, it should look for a point of re-entry. The timing was wrong on the first entry, but sometimes the profit exploded at the second or third time. This is one of the characteristics of professional traders' trading. The general public is afraid if they are cut off once or twice, but professional traders are objective and cool-headed. They review and evaluate each transaction by weighing the risk-for-benefit rewards, and treat each transaction requirement as an opportunity for new trading.

c. profit-making sale

If the stock you buy is making good profits, use several stop orders to avoid turning that position into a loss. For example, let's say you set a loss price of 7%. If the stock is showing a 20% return, this position should not turn into a loss. Therefore, set the stop price to keep the purchase price or the majority of the profit to prevent losses. It might feel foolish to stop at the purchase price or take only a small profit, but it feels worse when you let a pretty good profit turn into a loss.

When you buy a stock, you basically decide on the profit in two ways. One is to sell when the stock price is strong, and the other is to sell when the stock price turns in the reverse direction and descends to the Maginot line of profit to be kept, and to sell when the stock price is weak.

Selling strong is a method used when you are somewhat familiar with selling, such as a professional trader. It is important to be aware of when the stock is rising too quickly and when the uptrend has overstretched. Since there are usually many buyers in this case, you can easily reduce your position to the bearish signals you see when price increases start to decline. Both bullish and bearish selling require planning.

d. disaster planning

It may be the most important part of your contingency plan. This is because it deals with issues such as what to do when the Internet connection is disconnected or blackouts occur. Do you have an emergency system? I woke up in the morning and when the Financial Supervisory Service started investigating, I heard that the CEO embezzled funds and fled the country. The company's stock, which I bought yesterday, is facing a huge gap drop. How will you react in this case?

Priorities by importance
■ Limit losses. Decide how much you want to take the risk and set a cutoff price.

■ After the stock price rises - meaning after breaking the pivot point - If the new price is renewed after the first adjustment occurred, the loss price will be raised to the purchase price.

■ Defends revenue. Keeps high revenue from escaping. Use trailing stops or back stops.

Before entering a new position, the first thing I do is to determine where to stop the loss when the stock goes in the opposite direction of my position. If the stock price rises, it changes its priority to defending the purchase price. If you are lucky enough to continue to make a profit, you switch your priority to defending your profit.

Emergency planning makes the right decisions when shells are pouring out - when emergency planning is most needed. It also provides solid psychological strategies as well as trading strategies that can respond when you need to act immediately without prejudice. Conflicting thoughts can confuse you if you are unprotected at this time.

Planning contingency plans is always ongoing. Whenever you encounter a new problem, you devise a procedure to respond to it, which becomes part of the contingency plan again. You cannot have the correct answer to every problem, but you can handle most situations with rewards exceeding risks. This is the key.

Think and trade like a champion, Mark Minervini