What to Do When You Hit a Stop

Mania and euphoria have gripped the markets. The Melt Up is here, my friend.

That both excites and terrifies me.

It's exciting because the biggest gains are going to bold investors right now. And they could continue in the months ahead.

It's also terrifying because I know how things will end for a lot of the folks getting rich right now. And it ain't pretty.

It's too easy to fall in love with your stocks in times like these. And that can lead to crucial mistakes at the worst possible time.

One of those mistakes is not knowing what to do when you hit a stop. But it's really as simple as you probably expect.

Let me explain...

This isn't my first Melt Up. Far from it.

I witnessed my first in 1993 in Hong Kong stocks. The Melt Down that followed was brutal. As a broker, I watched clients dig in and refuse to sell, often racking up incredible losses in the process.

Because I follow markets around the world, I've seen plenty of Melt Ups and Melt Downs since then. And holding and hoping as the bull market unravels has been a common thread in all cases.

That's why you need to prepare yourself for what's coming now. I'll use my experience to help you along. But at the end of the day, you must act for yourself.

The moment of truth will be when you hit your stops. That's when you've got to decide to act or not. But here's the thing...

There isn't a choice to make. You must follow your stop and sell at that moment.

You'll tell yourself you don't have to. You'll have fallen in love with that stock by then. But trust me, the stock doesn't love you. The market doesn't love you. It doesn't care.

When you hit a stop, there isn't a choice to make. You sell. That's it. No matter how hard it is, or how terrible it feels.

So yes, today's message is a bit tongue-in-cheek. What do you do when you hit a stop? You sell!

I wouldn't be writing to you if it were easy, though. It's not. Especially in times like these.

You need to mentally plan for the Melt Down now. Get in tune with what's to come. Think about how it might feel when prices come tumbling down... how painful it'll be to sell when you hit your stops.

And finally, make the commitment to sell anyway... at the point you've decided.

If you do that now, then you've got a chance. You'll be able to act when you need to, instead of freezing in the fear of the moment. And you'll be in the best possible position to lock in your Melt Up gains.

Good investing,


Further Reading

"Losing everything in the Melt Down is an entirely avoidable situation," Steve writes. If you want to avoid catastrophe, you have to think differently. Check out Steve's two-part essay on mentally preparing for hard times ahead here and here.

Experiencing a pullback in your portfolio holdings is part of being an investor. And when that happens, you need to be sure you have a plan in place... Get the full story in Steve's classic essay: What to Do When Your Stock Is Crashing.

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Market Notes


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