Risk Control Again – FNSR ACOM OCLR NXTM

The importance of risk control cannot be emphasized enough. Risk control is even more important when markets have been climbing as they are now. It is easy to get excited and take on too much risk. The market has been moving sideways this last week which is very good news, we need to consolidate recent gains. The interesting move comes next as we discover whether we get a healthy pull back on low volume or a big sell off on heavy volume spelling the end. Notice I don’t claim to know the future, forecasts are useless, go with the flow. If markets continue up then buy more and if they fall back tighten stops to lock in some profit. The graph below shows the recent consolidation courtesy of http://www.bigcharts.com/

Now lets talk some more about risk control by way of an example. I have spoken many times how you broaden your base by buying new stock positions in new companies and also adding to those bases by adding onto positions that are going up. I wish to focus this week on broadening the base in the following example on risk control. Starting fresh after a follow through day you may buy one new stock position with perhaps a 10% sell stop in case the follow through day fails. Let’s assume you are successful and that stock climbs 30%. You can afford the risk of taking THREE new positions each with a 10% sell stop. If every one of those positions are stopped out you sell the original purchase with the 30% gain and end up break even. In all likelihood those new positions will also go up since you have been buying break outs on high volume.

Now note the beauty of the process. If those three new positions have gone up just a little, enough to adjust the sell stops to break even then you have that original 30% gain to buy another three positions. Imagine those three new positions also going up. I know this is hypothetical but let’s say you have 30% profit in each of those new positions. Then you have four stocks each allowing three new purchases with a 10% stop, that’s TWELVE new positions !!!! Imagine how those twelve new positions can grow your base if they all go up. Yes of course this is purely hypothetical but I just wanted to show you what is possible with ZERO risk other than the initial 10% risk.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

FNSR - $19.06

ACOM – $22.99

OCLR – $16.60

NXTM - $19.72