An important aspect of the Master Plan is setting a profit target and preserving
capital. The approach is fairly conservative – the profit target is approximately 7%
with a potential loss capped at 4%. The actual profit is likely to be more than 7%
while a loss is likely to be smaller than 4%. Here’s how it works.
• Once the target price is reached (7% above the entry price), half of the
shares are sold, locking in a 7% profit. The other shares remain invested to
benefit from any further increase in price.
• If the price moves against the trade, the maximum loss tolerated is 4%. This
preserves capital for future trades.
• Typically, more trades will produce a profit than a loss. The net result is
profit.
• The movement of the entire market is very powerful. When the market is
moving with your trades, a very high percentage of your trades will be
profitable.
• When the entire market is moving against your trade, a higher than expected
percentage of your trades will lose. The stop loss protects you from
excessive losses.
Profit is taken using a “sell limit” order – once the price is reached, the specified number of shares
are sold.
Capital is protected using a “stop loss” order – when the stop price is reached, all the shares are
sold.
