8. Sell if it drops

If the stock you have bought drops down to your stop-loss level, sell the stock. Do not hold onto it, hoping that it might rebound and erase your losses. Sometimes trades just don't work out. Don't be afraid to take your lumps and to move on to the next stock. After all, the next stock may be the one that makes all the difference in your portfolio for the year.

9. Buy more if it climbs

This step is as straight forward as the previous step, but it is a lot more fun. You have already determined the price levels at which you are going to be adding to your position in this legging-in strategy. All you have to do is execute your trades when your price triggers are hit.

10. Adjust your stop-loss level as needed

Your original stop loss level is most applicable to your initial entry point on the stock. Once your stock begins to increase in value, however, you may want to consider raising your stop-loss level to protect some of your profits.

For instance, if you buy a stock at $20 and set your initial stop-loss level at $17, you are risking $3 per share. However, if your stock rises to $25 and you leave your stop-loss level at $17, you are now risking $8 per share. To reduce some of your risk and to take some of your profit off of the table, you could move your stop-loss level up to $22—which would cut your risk per share back down to $3.

[To learn more about trailing stop losses, check out Trailing Stop Loss Orders—one of our easy-to-understand articles and videos.]

In our ADM example, we set our initial stop loss level at $21 because it was below the 23.6 percent Fibonacci level—which was below our initial buying range. However, if the stock price of ADM were to move up to $31 at the 50 percent Fibonacci retracement level, we may want to move our stop-loss level up from $21 to $27 at the 38.2 percent Fibonacci retracement level—or somewhere just below that level. This would still give the stock plenty of room to move back and forth in its normal trading range without inadvertantly taking you out of your trade, but it would also protect some of your profits.

Conclusion

You don't have to get married on the first date. When you want to buy a stock, there is no rule that says you have to enter your full position at once. If you take the time to plan your trade, you can reduce your risk by leggin into your position a little bit at a time.

Give it a try in your practice account, and if you like the results, give it a try in your live account. You don't have to be afraid of stocks in a bear market. You just need to be smart about how you buy them.

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