The $1 Rule - Once a Winner, Always a Winner

Once a stock (your employee) has moved favorably by $1, you should immediately adjust your initial stop to your break-even price. Now note that we did not say, "once you have a $1 gain?" No. You will move your stop to break-even once the stock has risen (fallen if short) $1 above the ideal entry price. It sounds the same, but there is a major difference. Continuing with the example above, you have bought XYZ at $20. Your initial stop is at $19.25, and you are looking for a $1.75 to $2 gain. The stock moves to $21, making for a $1 rise. If you were to sell at this point, you may not be able to get $21. A rise of $1 does not always equal a profit of $1. But that's not the point. Because it has risen $1, your action should be to raise your stop from $19.25 to $20, your break-even point. At this point, it's all smooth sailing. You can sit back, and relax in the comfort that you will make money at best or break-even at worst. Your trade is now being paid for by the market. And as we've mentioned above, you've got to like that. Special Note: Our in-house traders use a 75 Cents Rule when trading stocks under $12. We encourage you to do the same.