One of the most fundimental aspects of trading AND investing, is sticking to a fixed ruleset for how you want to enter and exit a trade. The basics remain the same whether you plan to hold a stock for 5 minutes or 5 years. You have to establish the rules BEFORE you purchase the stock. A lot of people only try to figure this out in hindsight - without a plan you are dead in the water and your money will be taken by those people who do have a plan and are following it, or who are using a stock trading system.

By plan I dont mean a get rich quick plan, or a foolproof way to make millions. I am talking about a rule for getting into a stock, and more importantly, a rule for exiting a stock based on conditions that might happen. The entry is never as important as the exit, afterall, you make nothing (or lose nothing) UNTIL you sell the stock. You should always have 4 plans of action:

1. Identify a stock, and figure out an appropriate entry based on expected holding time and stock price characteristics.
2. Before you even get filled, have an approximate hold time in mind, and reasonably what you think the stock should do.
3. Figure out a price target exit (based in reality, not greed). Once you have this target, figure out a trailing stop price once the trade starts working where you will cut the trade off. After a minimum move (depends on hold time), this stop price should move to at least breakeven.
4. Figure out where the ultimate cutoff is if the trade does not work at all. Meaning you are dead wrong. This happens even to the smartest and brightest traders. This cutoff should trail the price up if you are marginally right (meaning it starts off ok, but then falls apart over time). This way you are using some of the house (market gain) money to move up your stop.

The main key here is actually following through with the plan - for better or worse. Too many times novice (and even advanced) investors get into a bad habit of ignoring stops because they saw a few times where they cut the trade off only to watch it run higher and they would have had a nice gain. This is doom incarnate. Do not fall into this trap - by nature everyone ignores the stops where you exited at 30 for a 2.00 per share loss and it went down to 20. You only remember the 30 stop that turned up and ran to 38. Also another KEY point is : you can always, always, re-enter a trade that you stopped out on if you think it was a mistake or the circumstances have changed. Just remember, you need a plan again, just like before AND you have to stick to it.

A general rule of thumb is no more than 2 tries on any name - meaning if you try 2 times and get stopped for a loss both times - leave that name alone for a bit EVEN if you think you need to get back in. After all, there are thousands of stocks out there, dont let emotions get the best of you and make you think you have to make the loss back in that stock. Who cares what the stock is as long as you make money?

When investing, whether trading or long term most people worry about the entry. Is the stock too high? Will it keep going lower? Will it be affected be the overall market conditions?

These are all valid questions and do play an integral part in any investment or trade. The one thing almost no one takes into account is where and how do I exit a trade, whether is a day trade, swing trade (few days or weeks), or a long term investment (3 months to multi years). I would argue that the exit is more important than the entry. Sure if you screw up and buy at the wrong time (shorting also, but that is another topic) you can be assured of a loss. However, more often than not, people are pretty good at entry of stocks, assuming they are not chasing hype and have been patient with their method. The place they mess up is the exit. They have no rules. Once you start making money, greed can take over. "I don't want to sell too early, it might keep going," or "The last time I sold when I made xx amount, I could have made 10 times that much." Every entry, BEFORE even placed, should have an exit strategy.

Exit strategies can include the following:

1. Trailing Stop - A price below the peak gain price where you will take profits if the stock reverses and starts to sell.
2. Scale Out - Take the investment and scale out at fixed percent gain intervals. For example, and a great one for investing, if you own stock and it rises 25% up, sell 1/4 of the position. Once it rises to 50% gain on the balance, sell 1/2 of what you have left. You have now locked in a 25% gain on your original purchase. The balance should be at most locked at breakeven (meaning if it starts to sell, never let it go to a loss). On the balance, if the stock takes off strongly after a 50% gain, look to sell the balance and move on.
3. Forever Investment - If you have an investment that you think is a super deal longer term and you are lucky enough to get a 100% gain on it, immediately sell 1/2. Why? Because once you sell 1/2, you have done a superb thing. You have retrieved your original investment out of it, all the money, and still have 50% working. Even better, no matter what, even if the company goes bankrupt, you cannot lose. Ever. Take that 50% you have out, and try to find 2 other ideas that might do the same. The one thing to keep in mind here is there are only very very few Walmart, Home Depot's, McDonalds etc. Even if you have locked in this part, be aware that tons of companies do superb for years, then the market changes and they bite the dust. It is super rare to find a new Proctor&Gamble or Microsoft.
4. Price Target - figure out from entry where you simply will just get out. For example you might purchase a stock at 12, but be very happy if it went to 15 in a month or 2. So that is your exit. Price targets are entirely dependent on expected hold time and should grow the longer you plan to hold the stock (within reason). The key to remember here is you have to take what the stock is capable of doing, not what you want the stock to do.