Yesterday was a ride at the kiddie amusement park of the mini roller coaster. The up and down generated some amusing headlines on the financial networks, but when it was said and done it was a good lesson in risk management. The number one thing I heard from investors was concerning giving back profit. I even made a comment in the update last night comparing my holdings to a playing craps, eventually you roll seven and the house collects the money on the table. Thus the need for stops. We are at a psychological point of managing ourselves.

The broad market indexes have moved up 8-10% off the lows in February and if we took new positions on the move we have a nice profit in a short period of time. This begs the question of taking money off the table. The answer is found in the strategy behind the position. What was the objective/goal? Did you hit your target? How do you treat these situations? Oh the questions we can generate at exactly the wrong time. You will note emotions arise on both ends of the spectrum, fear of losing and greed of not selling at the top. I have said before and I am sure I will say it again, investing is about “what if…”

Being prepared is 90% of investing. If I bought IJR at $54.50 with a target of  $57 as a trade short term, what do I do with it now? The close last night was $58.76. The important thing to learn is this, now is not the time to be asking that question! You should ask that prior to buying the position. Too often we don’t ask ourselves the “what if” question because we don’t have faith in our strategy. Let’s get in our time machine and go back a couple of weeks and ask ourselves “what if” IJR hits the target. The $2.50 gain amounts to a 4.6% profit. The time frame was a trade or 0-90 days. If the target was hit it would be a break above the January high. This could generate enough momentum to push higher. Therefore, I will raise my stop and let it run, taking some downside risk of the profit to see if it can move higher. If it hits $60 I will sell half and let the rest run with a trailing stop. I have a plan “IF” IJR reaches the target. I am not asking emotional questions at the wrong time. In other words I am prepared.

The markets are still at a decision point of moving higher or testing this move. Be prepared for either event. Define your objective for each position in your portfolio and manage them according to risk and goals. Longer term positions you need to give room to deal with a potential pullback and shorter term trade positions you want tight enough stop to let them run, but protect the gains if the market pulls back. This is not exactly rocket science, however it is mental science of managing you, your emotions and your money. Not the best combination in the world, but we have to play the hand we are dealt.

Have great  investing day.