Now Is The Time To Determine The 'Uncle Point' Of Your Portfolio

The S&P 500 has had a heck of a July, breaking out to new all-time highs. While it’s fun to sit and watch your stock portfolio delivering gains on a daily basis, Eagle Bay Capital founder J.C. Parets believes every stock trader should know his or her exit points.

According to Parets, even the best investors don’t know what tomorrow will bring, and setting a rational sell point before you ever buy a stock is always a good idea.

“Remember, we’re not in the business of being right, we’re in the business of making money,” Parets wrote.

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He said investors should determine their “uncle” point, the price at which they will sell if the trade goes against them. In addition, they should consider at what price they will take their profits if their trade goes exceptionally well.

Calling 'Uncle'

“You ever hear the phrase ‘defense wins championships’? That doesn’t just apply to football or even baseball, but in the capital markets as well,” Parets added.

Determining an appropriate place to set stop loss orders on a position can be difficult. Typically, the larger the position size, the more downside risk and the tighter you want the “uncle” point to be.

Personally, Parets doesn’t ever risk more than 2 percent of his portfolio on any given position.

However, even if you have a higher risk tolerance, it’s always easier to make these types of decisions when the market is going up rather than when it is crashing.