When I designed VectorVest almost thirty years ago, I believed that investors should buy good stocks and hold them as long as possible. So I created an exit criteria which weighed heavily on fundamentals so that high RV, high RS stocks would hardly ever get a sell signal. In other words, high RV, high RS stocks such as KO, MCD and MO would be sold only upon deterioration of their fundamentals.

That approach was naïve. I knew that individual investors like me heard business news reports only after the stock's price had gone up or down big time. So I had to leave the ivory tower and base my exit criteria on Price. With a Price based Stop, I could decide ahead of time when to close my positions and be proactive instead of reactive. That's one of the things I like most about trading stocks: I have considerable input in controlling my potential losses.

OK, so how would I do that? I could use a simple 10% stop loss and have done so for a number of years. But, I thought, every stock is different and should be handled accordingly. So I finally decided to use a 13-week, non-linear, moving average of closing Price, adjusted for RV and RS. In this way, I would be in sync with the quarterly earnings reporting cycle and I could still tune the Stop-Price to favor stocks with good fundamentals. Even with this inspired design concept, a lot of our subscribers question the usefulness of VectorVest's Stop-Prices. I'm not going to debate the subject now, but I only ask that you read my essays of January 17, 2003 and April 21, 2006.

Truth be known, VectorVest's Stop-Prices are best suited for investors who are interested in holding stocks for the longer-term. They were not designed for active traders who should be using tighter stops. For example, we use 5% stops in managing our Model Portfolio. Regardless of how you select your exit prices, it's essential that you always have an exit Price in mind. In fact, you should know your exit Price even before you buy a stock. Without such a discipline, your trading process will be Fatally Flawed.

P.S. I consider any newsletter, service or stock guru who makes stock recommendations without corresponding exit strategies to also be Fatally Flawed.