7. Monitor the stock

Once you are in your trade, you need to monitor your stock position. This may seem like an obvious statement because of course you are going to be monitoring your trade. However, there are a few key things you need to be watching as you monitor your trade.

First, you need to be asking yourself the question..."If I weren't already in this trade, would I still think it looked like a good trade?" Circumstances change all the time in the market, and the reasons that you had for wanting to get into a stock in the past may no longer apply. For instance, you may read a news story about an analyst downgrade of your stock, or you might see a negative change in the company fundamentals when it releases its most recent quarterly earnings numbers. Whatever the reason, if you no longer feel comfortable in your trade, you do not have to stay in it.

[To learn more about analysts estimates, check out Analysts Estimates —one of our easy-to-understand articles and videos.]

Nowhere will you find a rule that states you have to wait for a stock to hit your stop-loss level to exit. You are free to sell whenever you want to.

Of course, you may be in your trade and realize that it is going to be a much better trade than you had first anticipated, and this may lead you to want to buy even more shares in the company than you had originally planned. For instance, you may see a news story touting the company's latest smash hit in its most popular product line, or you might see a positive change in teh company fundamentals when it releases its most recent quarterly earnings numbers. Whatever the reason, if you become even more excited about the potential of your trade, you can always put more money into it.

In the case of our ADM example, you may see a story in the future that states commodity prices are increasing because the global economy is coming out of its recession. Since you know the increased demand for ADM products from a resurgent global economy will mean a fatter bottom line for the company—which should lead to a higher stock price—you decide to up your stake in ADM from 100 shares to 200 shares.

This special report continues on the next page...

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3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."