Today I added 20% trailing stops on all my holdings of monthly dividend stocks and other securities in order to help protect my capital base. I'm convinced that virtually any good bullish trading strategy is going to necessarily involve some stop loss orders, and I also believe that the market is still on relatively weak ground. Much of the rally up to this point seems to me to be speculative, and we could very well see another round of capitulation if there is a decent run of negative economic news or if there is a major catastrophic event such as 9/11. While total global financial meltdown no longer seems imminent, it does appear it came very close to happening, and it could do so again. However, now that banks are outrageously profitable thanks to low interest rates, they do indeed seem to have the capability to absorb significant loan and credit losses going forward. This gives me a greater sense that the financial world is stabilizing, however, there are still many variables that could pull it crashing down in a hurry. I do believe that the entire market in general is definitely going up slow and steady long term, but if everything should suddenly come crashing down again, the market will test new, even lower lows, and I don't want to be caught watching all my unrealized capital sink to half of its value or less. I also don't want to trigger a stop loss amid short term volatility. Therefore, I decided a 20% cushion would be the appropriate amount at which to set trailing stops. If the all-out armageddon finally arrives, my portfolio is ready for it. If a stop loss order gets automatically filled here and there when I would have chosen to hold instead, it's not the end of the world... then I just have to decide if I want to keep the cash or reinvest it.
For more information on Tony Farrell's Monthly Dividend Stocks go to http://www.monthly-dividend-stocks.com
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