Buying Chevron? Consider an Exit Strategy

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). 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.

Don't misunderstand what I'm suggesting here! Trailing stop alerts and having an exit strategy you can live with is not foolproof, as any fool will tell you. In an age of mini-flash crashes I've chosen to use TradeStops, which is an online service that helps me monitor my stocks and my trailing stops without the stock's market maker being able to see my order.

Plus, if a mini-flash crash happens to one or more of my stock positions, I won't be automatically sold out at a ridiculously low price only to see the price rebound right back to where it was in a "flash." I'm doing more independent research on this topic and hope to update you in the near future.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

When it comes to Chevron the company, I fundamentally feel comfortable as a shareholder. After CVX's mid-term update report after the market closed Thursday, I'm as encouraged as before. Our research director at, Stephanie Link, and Action Alerts PLUS co-manager Jim Cramer had the following comments in their report on Friday:

It CVX's mid-term report translates into $3.01 for the 4Q earnings, above the $2.98 consensus. We don't expect any material changes to estimates on the news. Upstream volumes have tracked to 676K BOE/d in October/November, which is above the consensus of 650-660K BOE/d due to better liquids and solid international volumes.

Crude price realizations through November were also ahead of expectations. Kazakhstan maintenance has been completed and likely helped the production side and Gulf of Mexico shut-ins have reversed. Downstream volumes are in line, but refining and marketing margins were ahead of expectations.

Shareholders will receive more details when the company reports earnings on Feb. 1, but the Chevron report came as a relief since its last mid-quarter earnings were disappointing. Friday morning Tudor Pickering raised its fourth quarter earnings estimate on CVX by 3 cents to $3.11, which is above the analysts' consensus estimate of $3.04. The firm reiterated its "Hold" rating however.

Even at Friday's closing price of $111.73, the $3.60 current dividend offers a yield-to-price of 3.22%, not too shabby in light of the 10-year Treasury bond yield of 1.88%. The one-year chart below helps illustrate how CVX shares tend to follow a price range which correlates to its price-to-cash-flow (TTM) ratio. CVX Price to Cash Flow TTM Chart CVX Price to Cash Flow TTM data by YCharts

At the time of publication the author had a position in CVX.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.