Think about this one. Has your broker EVER recommended that you place a stop-loss order on a stock after you have bought it? Ninety-nine percent of the brokers never think about helping you protect your capital. In fact these brokers are not taught this very important technique. The brokerage companies don't realize that by helping you get out of a poor position it gives them more of your money to trade again to make them even more commissions which is all they really care about.

You see, they don't want to recommend stops because if you sell out you might take your money out and that's a no-no. Or worse yet, you might blame the broker because the stock went up after you were out and now you are mad. Let me draw on my 30 years of experience as a trader and let you in on a little secret. Three weeks to 6 weeks after you have been stopped out of any position that individual issue is going to be lower than where you sold it in about 75 to 80% of the time. When you are at the gaming table you must go with the odds.

I hear your protests. "But I'm not a gambler, I'm a long term investor" No, you're not. You are just as much of a speculator as the day trader; the only difference of the time frame. To make a substantial return on your investment you must keep you funds working with profitable stocks or mutual funds all the time. You cannot afford to buy something and have it drop in price and then wait months or years for it to come back "even". It is not "even" because you have lost the investment power of your cash by not being in some other stock that is going up NOW not some nebulous time in the future.

Stops are easy to figure. Don't ask your broker; he probably doesn't know. Very simply you might place a 10% stop below the low of the previous 2 weeks and keep moving it up every Monday morning. Let's take a look at what might have happened in this recent crazy tech market. Microsoft went to $119 and as of this Friday, May 26 was $61; WorldCom went to $64, now $37; Palm $165, now $21; E-trade $72, now $15; Ask Jeeves $190, now $20; Red Hat $151, now $17 and there are plenty more like this. Many are 80% lower and it is doubtful we will see new highs in our lifetime. If you owned any of these last year and did not have a stop sell you are hurting today.

And if you did get stopped out and it went to a new high you could buy it back again placing the same kind of stop. Using this method to sell is letting the market tell you when to get out and not guessing that this is the high. You don't know. Neither do I. Let the price action tell you. This is what the professionals do.

You must learn how to use stops or you will never make real money in the market.

Al Thomas

Albert W. Thomas has spent most of his life in the field of finance. In 1965 he founded an insurance holding company, Security Dynamics Investment Corporation, after having been an agent and General Agent for several life insurance companies. In 1970 he became cofounder and president of Real Life Estate, Inc., that marketed a unique real estate and life insurance package.

After he became interested in commodities he bought a seat for his personal trading on the Chicago Open Board of Trade, which is now known as the MidAmerica Commodity Exchange. Later he became a full time trader and also acted as a commodity broker for a few select clients. By fellow floor traders Al is considered to be an excellent technical analyst much of which is outlined in his book IF IT DOESN'T GO UP, DON'T BUY IT! It became a best seller on Amazon.

In 1981 he sold his membership on the Exchange and with his wife, Carolyn, lived full time aboard their 41' ketch, the Aumakua (which means guardian angel in Hawaiian). They sailed in Florida and the Bahamas for two years.

He founded World Trading Group in 1984 that grew to the seventh largest introducing commodity brokerage firm in the U.S. with 35 offices from coast to coast, Alaska and Canada. It was sold in 1992.

Al is a graduate of Northwestern University with a B.S. degree in Commerce and is a member of MENSA. He is now president of Williamsburg Investment Company that syndicates his weekly financial column since 1999 to more than 300 newspapers and writes a financial market letter called Over My Shoulder that is quoted in Barron?s and many other publications. A 3-month trial subscription is available on his web site. He is a regular guest on several financial radio talk shows.

His favorite pastime is fishing.

Mr. Thomas is available for speaking engagements. Please call 321-453-5300 for more information.