When you look back on an investment you may or may not have made it always seemed logical in afterthought whether it was a profit or a loss, but it was a mystery in forethought.

What caused the investor to come to that conclusion? And how did he exit the trade?

Let’s stay with the stock market as an example although everything said here will apply to almost every purchase a person makes. Yes, even something as simple as going to the grocery store – with or without a list.

All professional traders have a plan – a philosophy. It may be or at one time was written out and modified to their current buy/sell program.

Every attacking General has a retreat in mind.

When you see the open outcry method in the commodity exchange pits it is hard to believe they are doing anything logical. Yet every one of them is executing his own plan. Having been one of those “crazies” for many years I can assure you that without a plan they would not be there very long.

There are a thousand traders on the exchange floor and there are thousand different plans being executed. None of the plans are 100% successful. Traders will tell you if they are right 40% of the time they consider that to be very good.

The secret to every money making plan is to keep losses small and let profits run. The first part is the key to success. Small losses will not hurt the portfolio. It is the big ones that are the killers.

It doesn’t make any difference whether the plan is for long term trades (you define long term) or if the person is a day trader. Today there are huge multiphase computers executing buys and sells in fractions of a second yet those computers are set to exit any trade when it goes beyond a certain loss factor.

The single most important part of trading is minimizing losses. That is why the Buy and Hold strategy does not make money. During the 10-year period from 2000 to 2010 following the major index of S&P500 it lost 25%. If the investor had had some type of loss limit protection the account could have shown a profit.

During that 10 year period there were 3 times when one of the major indexes lost more than 40% of its value. The professional approach (even if the investor is an amateur) must always realize there can be major losses that must be guarded against.

Mutual funds are not safe from major losses. Financial planners may not be. Market newsletters run hot and cold. Finding one of the few advisors who understand market risk is difficult as there are very few. And the investor can be his own worst enemy.

Can you, will you take the time to create a plan to protect your investment funds?

The time to do that is NOW.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2010 Williamsburg Investment Co. All rights reserved.