Like most investors, one of your top goals has been to enjoy a financially secure retirement at whatever age you choose.  That being the case, it stands to reason that your retirement “nest egg” should ideally generate above-market returns, often with below-market risk.

But to do so, you need to have a plan in place.  For example:

Step No. 1 – You Must Have Stop Losses in Place

Any time you enter a trade, consider what would happen if that trade failed.

You’d never want to see 80% of your trade wiped out on a pullback, right?  So, it’s always a good idea to set a stop loss of -25% for example.  Should your favorite trade fall, your downside is limited by that stop loss.

Another is the trailing stop loss – the very exit strategy that removes all emotion from the trade.  If your stop is hit, you’re out automatically.  There’s no second-guessing.  If your stock pushes higher, the trailing stop resets higher, too, never triggering until it plummets.

For example, let’s say that in the middle of January 2019, I risked $10,000 on a small cap stock that trades at $10.  When the stock reaches $16, I’m sitting on good money.  All of a sudden, the stock starts to fall to $11 because run is ending, and as others panic on the pullback.

What to do? Panic and sell?  Or protect the gains I have without emotion?

I’d choose the latter with a -10% trailing stop, for example, which means if the stock now pulls back 10% from current prices, I’m automatically stopped out, no questions asked.

Step No. 2 – Have a Plan

Have a complete 360-degree view of what you’re buying before you buy it. Fundamentally, take a look at what’s under the hood of the company with regards to earnings ratios. Technically, understand what’s happening in the short- and long-term with support and resistance.

Know your exit strategy, and your money management strategy, including stop losses and trailing stop losses.  Never risk money you cannot afford to lose.  Keep your expectations in check, be realistic.  And above all else, never risk more than you can afford to lose.

Step No. 3 — Know Where the Best Profit Opportunities Are

I tend to search for investment ideas in small-cap stocks.

That’s because most are insulated from geopolitical issues, such as trade war fears. Remember, small caps have much less exposure to international headaches than companies in the S&P 500.

Even better, small-cap stocks have a history of outperforming large-caps, returning an average gain of 12% a year over the last 90 years, as compared to a 10% annualized gain on the S&P 500, as reported by Market Watch.