Amazingly, there is always a question that has not been asked, although I thought I had heard them all. Here’s what reader Gary had to say:
In using a high, from which to calculate a 7% or 10% stop, it’s pretty easy with a mutual fund, because there is only one price per day.
But for ETFs, there is an intraday high and a closing price. I know you said to consider the stop triggered when the ETF CLOSES below the stop. But do you set the stop using the ETF’s highest high, or its highest close?
Which of these do you designate as the high from which you calculate the stop?
For the purpose of finding the high point, from which to calculate the trailing sell stops, I treat mutual funds and ETFs exactly alike.
To my way of thinking, there is only one price that matters and that is the closing price. What happens intraday is just market noise and of no consequence to me when it comes to sell stops.
Therefore, the high price, based on a closing basis only, is the one I am selecting. To clarify again, it is highest closing price of an ETF, since you bought it, which will be used as a basis for calculating your trailing sell stop.