Some readers were still having trouble about the proper implementation of the sell stop discipline during the recent market pullback:
In my government thrift fund, I can chose from S&P; 500, small cap, international, bond and treasuries. The international fund dropped to just over 7% of its 1/14 high today but your international fund trend line is still in positive territory.
This is where I get frozen in a decision. It has broken the 7% line but it really is not a mutual fund but a broad index which should be closer to your international trend tracker. Shall I wait for you to ignite a sell on the international tracker or trade based on the 7% rule?
Here’s another one:
Has there been a sell stop triggered for international mutual funds? I see in your Friday blog that the international index trend line is still +2.97%. Would appreciate the clarification. Thanks!
Execution of the trailing sell stop takes precedent in the event that either of the Trend Tracking Indexes (TTIs) are still positioned above their long term trend lines.
The TTIs are slow moving indicators. Depending on when a market pullback occurs, waiting all the way for the trend line to be broken to the downside can wipe out your profits or increase your losses to an unacceptable level.
In the case of the international TTI, whether you’re using indexes or mutual funds, the sell stop has priority. If you got stopped out, and now are watching the market resume its upward trend, you have experienced a whip-saw as discussed in the past and need to look for a new entry point.
Comments 4
Thanks for the clarification. This time my hesitation delayed my action to liquidate the international and as of Monday's gain, I was back above the sell stop. All my trades must be made by noon so my view of the direction of the day is limited and many days (of late) the market is fickle and hard to predict. Also, I do have limitations about the number of trades I can do in a month so this early in the month I need to be cognizant of that as well. I am going to set my sell at 7.5% to account for this and see how comfortable I am with that. The harder part is deciding when to get back in. Thanks again. KB
And so, if I understand correctly, your advice is to either sell when it gets stopped out at 7% (or whatever your pain threshold is), OR…you can also wait one day or n number of days to see if the price stays below your sell stop. With n being the number of days you can stomach watching the decline after your stop is reached.
I think that's what you've been saying if I've understood your previous articles say?
Anon,
Yes, that's what I said….
Ulli…
You don't have to sell all of it. Sell half and set another, but tighter, stop loss to sell the reminder if necessary. You can always buy back in if we get a rebound. Now is a good time to review Ulli's hedge strategy.