On the path of life there will be some rain and therefore puddles. Most are shallow and we easily splash through them and occasionally there might be a very deep one. Learning to navigate them will make the journey more pleasant.

Your investment journey to the pot of gold at the end of the rainbow will require your not stepping into those deep holes. It is almost impossible to know the depth of any pothole so an investor must have a strategy for the unexpected and it must be in place before the foot sinks out of sight.

Every professional trader (and you are a trader whether you believe it or not) has an exit strategy for his portfolio. Those who do not are doomed to sink out of sight in a very deep and muddy pool. When any stock, mutual fund or ETF is purchased it must be determined prior to purchase how much the investor (trader) is willing to lose or how take profit.

It is pretty stupid to sit and watch an Enron, Delta or AT&T take all or most of the money. No one wants to see hard earned dollars evaporate. There isnt even a cloud of smoke to go with it; it just disappears. In 2000 to 2003 we saw the NASDAQ lose 78% of its value and the DOW go down 40%. Dont let this happen to you; it can occur again. You must set your investment exit strategy now.

The first thing any successful investor does is determine how much he is willing to lose. Is that shocking? When people buy a stock they immediate think about how much they are going to make, not lose. Knowledgeable traders think about their losses first and profits second. Losses must be dealt with today. Profits will take care of themselves.

This means you must have a selling guideline. Most brokers will not help with this as they are not taught to protect customers money. The simplest method is the stop loss order. Say you paid $40 per share for a potential pot of gold. How much are you willing to risk? One hundred shares cost $4,000 plus commission. Are you willing to see it drop to $3,000 before you sell or is that too much? Twenty-five percent is pretty steep and many traders will not risk more than 10%. Whatever amount you decide upon should be set with your broker as a permanent stop loss order. Dont let him tell you he will watch your account because he wont.

As your stock moves up the stop order should be moved up to protect your profit. This is known as a trailing stop and most brokerage firm offer it. Every path has puddles. Dont step into one that is over your head.