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NEW YORK ( TheStreet) -- If you've been reading my articles you know that I'm a proponent of the trading approach of pros like Paul Tudor Jones.
The billionaire hedge-fund trader has a way with words, and the following is one of my favorite quotes attributed to him:
The most important rule of trading is to play great defense, not great offense... I am always thinking about losing money as opposed to making money... Risk control is the most important thing in trading... Never play macho man with the market.
That is precisely the approach I've been taking with
Chevron(CVX - Get Report). Since my most recent share purchase of CVX at $104.26 I've kept a 15% stealth
trailing stop at a share price level I'm comfortable with.
The trailing stop alert service that I use sends me an email alert when and if the shares of CVX fall 15% (my chosen percentage) below the highest price CVX attains from the time I purchased it. So, for instance, with the shares trading at around $111.65 on Friday, my trailing stop alert order stands ready.
If the shares were to fall from $111.65 to $94.90, I'll receive an alert telling me it's either time to sell or it's time to buy more. I set the parameters, but it's all part of my carefully chosen
exit strategy that gives me my version of what Paul Tudor Jones called "risk control."
With trailing stops, I'll always know exactly when it's time for me to sell a stock, because I've predetermined at what level or price that will happen. There's no more guessing or operating on unreliable hunches, and it keeps emotions (like fear and greed) out of the decision-making.
My renewed resolve is to never again hold on too long to any stock, thus letting small losses get out of hand, or selling too soon and leaving money on the table. Everyone says smart traders "cut their losers and let their winners run," but how many are truly that disciplined?
With all that said, I'm delighted that CVX has done well enough for me since I bought my initial shares in my Roth IRA back on Oct. 10, 2012 at $112.53. My trailing stop loss guided me to not panic and sell when the share price fell to as low as $100.66 on Nov. 15. If CVX shares had closed at $95.65 or below that day I would have stuck to my discipline and sold my shares for a barely acceptable 15% loss.