How to Prepare for a Stock Market Pullback

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After getting slammed by a sharp post-election stock market pullback, many investors are trying to figure out if this is the beginning of a market crash or simply a needed correction.

Either way, legendary investors, hedge fund managers, and some of the largest investment firms are calling for a decline through the end of the year and possibly into 2013, depending on the resolution of the fiscal cliff.

On Monday, Goldman Sachs Group Inc. (NYSE: GS) Chief U.S. Strategist David Kostin restated his 1,250 year-end target for the Standard & Poor's 500, which is roughly 10% below yesterday's close.

"Uncertainty swirling around the 'fiscal cliff' that must be resolved by year-end, the pending jump in capital gains taxes at the start of 2013, and the debt ceiling that will be reached in late February represent clear and present downside risks to the market in the near-term," Kostin wrote to clients, effectively summarizing the bears' case for a continuation of the recent downturn.

Besides Goldman, Marc Faber has predicted a 20% market plunge will occur during President Barack Obama's second term. Peter Schiff recently called QE3,"Operation Screw" because "everybody's pretty much screwed if they own dollars," and even technical indicators are hinting at an upcoming slide.

This doesn't mean panic or run - in fact, those are the worst things you could do. Instead, follow these steps to prepare for a stock market pullback.

Prepare for a Stock Market Pullback

Money Morning's Chief Investment Strategist Keith Fitz-Gerald has a strategy that will protect your investments should a steep stock market decline occur. It will allow you to capture any upside growth in the market.

By implementing tight trailing stops, and structuring your portfolio with varying degrees of risk, you can make the best of a bad situation.

Here's how:

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