Guest Author - Guido Deboeck

Now that Thanksgiving is over and the coming days and weeks your attention goes to shopping for the holidays, there may be less time to sit in front of the computer, monitor the stock markets, and take care of your portfolio. Like most other serious investors you have patiently watched profits accumulate after the markets in mid August turned around and especially since the beginning of October when a lot of stocks broke out. You are now concerned about unrealized gains in your portfolio that you do not wish to see evaporate while in the next three to four weeks your focus is on shopping. What to do?

Using a sound set of investment rules and stop orders you can avoid that while your are shopping or away from your computer, you can still hang on to those accumulated gains. Note that if any of your holdings show losses that it is in your advantage to realize those losses before the end of the year because they will reduce the amount of net gains that you have at the end of the year, which are to be reported for your 2006 tax return.

Before rushing out to the mall consider these simple sell orders:

1. place a sell order at five to seven percent below the original cost of any holding. I deliberately wrote five to seven because the markets have become so sophisticated that they can take out all sell orders seven to eight percent and bounce right back (the influence of a million or two IBD subscribers...).

2. place a sell order a point or two below a 10 or 20 day moving average line, that is if you want to hang on to the bulk of your profits, or a point of two below the 50 day moving line, if you can live with a drop of 5 or even 10 percent from the profits already accumulated.

3. place a sell order on all holdings that reach a return of 20 or 25% (I do not care if they were realized in 1, 2 or 3 weeks and will explain later why 20 to 25% gains per holding are enough to make a decent overall rate of return).

4. place a sell order a few points above your original buy price to prevent that a big gain makes a round trip and creates a loss of five to seven percent.

All of these four sell orders can be achieved via standard stop limit orders. A stop limit order indicates you want your order to seek an execution at a specific limit price or better once the activation price is reached. You should enter an activation price as well as a limit price for these orders. In addition to the above consider the use of trailing stop orders.

Trailing stops are orders entered with a stop parameter that creates a moving or "trailing" activation price. When using a trailing stop, you must enter the stop parameter in points or as a percentage. If you use points, the trail amount must be a minimum of one cent ($.01) and no greater than the current bid (if a sell) or ask (if a buy). If you use a percentage, the trail amount must be a whole number between 1 and 99.

When placing a stop order, keep in mind that activation prices differ for each exchange. Stop orders placed for NYSE securities are activated by the last traded price. Sell stop orders for NASDAQ securities are activated by the bid price.

Using sell stop limit orders or sell training stop orders you can walk away from your computer and relax while you are shopping, knowing that your portfolio holdings and especially your unrealized gains are properly protected.

For more on the above read also some of the links posted below.