After You Invest
Managing a live position: where the stop belongs, how the two stop order types fail differently, and when to take money off the table.
- 01Decide the exit before you enter. The moment a position is falling is the moment you are least able to think about it clearly.
- 02A stop-loss and a stop-limit fail in opposite directions — one fills at a bad price, the other may not fill at all.
- 03Trimming a winner back to its position cap is risk management, not weak conviction.
Protecting the downside
5.1A stop belongs where the argument breaks
A stop is a price decided in advance at which you accept the thesis was wrong. Its purpose is not prediction — it is making the decision while you are calm. Place it beneath a level the share has defended before, or beneath the point where your reason for buying stops being true. An arbitrary 10% below entry will be triggered by ordinary daily noise in a volatile name, for no informational reason at all.
Stops belong on individual positions. A broad index fund held for years is protected differently — by time, and by the cash buffer from module 1 — because a stop on it tends to sell during exactly the kind of fall broad indices have historically recovered from. The Model Portfolio holds its base tier without one for that reason.
5.2The two order types fail in opposite directions
This distinction is worth more than it appears, and most people learn it the expensive way.
5.3Size the position from the risk, not the conviction
Decide the maximum percentage of the account you will lose on any one position — this site defaults to 1.5% — then work backwards to a share count. A wider stop produces fewer shares, so a more volatile idea automatically receives a smaller position without any act of will.
The same arithmetic on your own account size is below. Widen the stop and watch the share count fall on its own — that is the mechanism doing the work, not a judgement about how brave to be.
Ten consecutive losses at 1.5% would cost about 14% of the account — a dreadful run, and the number that decides whether it is survivable or terminal.
At 1.5% per position, ten consecutive losses — a genuinely dreadful run — costs about 14% of the account. At 10% per position the same run leaves you with a third of your money and no realistic path back.
Managing a live position
5.4A target price is a thesis written down
A target is an estimate of what a share would be worth if a specific argument proves correct. It is not a forecast and certainly not a promise. Its real value is forcing the argument to be explicit, so you can check whether the reasoning still holds when the facts change.
Compare the distance to the target with the distance to the stop: that ratio is reward against risk. It tells you how often you need to be right just to break even — half the time at 1:1, one time in three at 2:1, one time in four at 3:1. That is why many investors will not open a single trade below 2:1 or 3:1.
Every pick on this site shows its entry zone, stop and 12-month target, so you can work the ratio out yourself. Many sit below 2:1: they are longer-term setups with room below for normal swings, not short trades. A low ratio is not automatically wrong, but it means the argument has to be right more often, so check it before you act.
5.5Trimming is not a loss of nerve
A winner that doubles becomes a much larger share of your portfolio than you originally chose. Selling part of it back to your intended cap is not doubting the company — it is declining to let one position quietly become your entire outcome. The alternative is a portfolio whose risk profile was set by luck rather than by you.
Rehearsing these while nothing is at stake is the point. Every one below is a position that has just done something — decide before you read the reasoning.
5.6How often to look
Stops and thesis breaks need attention when they happen; everything else can wait for quarterly results. Daily monitoring of a long-term position produces anxiety and trading, in that order, and neither improves returns.
Before buying anything, write down three numbers and one sentence: entry, stop, target, and what would have to go wrong for you to sell early. If you cannot fill in all four, the position is not ready.
The position sizer on Stock Analysis turns an entry, a stop and your account size into a share count. My Portfolio then tracks every open position against the stop you set.
My Portfolio