I've thought about certain circumstances where a stock has risen beyond fair value and continued to be overbought. I was worried about pullbacks wiping out my capital. Take for example, if I went long into Apple at 100. It is now 141 and overbought. USD100k turned into 141k. What do I do next? I could sell all of my Apple and harvested USD141k. But if Apple rallied to USD150, I would have lost a further USD9.
An alternative is to remove USD100k. Keep USD41k in Apple and let it run. The rest of the exit rules apply. If it rises to USD150, I would have made a further USD8k. If it falls back to 100, I would have my profit reduced to USD30k but my principal remained in tact.
I could do that for every stock I buy until my entire portfolio is risk free!
An alternative is to remove USD100k. Keep USD41k in Apple and let it run. The rest of the exit rules apply. If it rises to USD150, I would have made a further USD8k. If it falls back to 100, I would have my profit reduced to USD30k but my principal remained in tact.
I could do that for every stock I buy until my entire portfolio is risk free!
