ETF Trends Forum » ETF Forum

How late to enter a trade

(9 posts)

  1. fred h
    Member

    If an etf has begun to move above the 200 day moving average, how high can it get for it to continue to be a good idea to buy shares of the etf? When might it be too late to catch the rally of the etf?

    Posted 1 month ago #

  2. Donato
    Member

    Hi Fred . . .
    Are you an engineer? I know that my brain works like an engineers. And that makes it harder to get in and out of trades, because we want precise answers. There are probably as many answers to your question as there traders. Here's an extreme example, although it is using a stock, I think you'll get the point: Was Google a good buy when it got up to 80? How 'bout 100? What about 200? 300? Surely 400 is too high! Oops, just hit 500.

    Although you may not realize it, what you are really trying to ask is one of risk management, not price levels.

    Coincidentally, I was considering how to explain risk management to someone completely ignorant of investing (I am definitely not trying to say you are ignorant). See if the following example makes sense to you.

    If everybody made entry and exit decisions in stocks (ETF's or whatever) like they made those same decisions regarding a car, financially speaking, they'd be a lot better off. Think about it . . . When you enter a car, you have just made two decisions on when to exit that same car . . . Both a best and worst case scenario. The best case is when you arrive at your destination. The worst case is when there is an accident. After an accident, how long do you stay in the car. Most people get out pretty quick. You certainly aren't going to stay in as it burns. Yet the bulk of people did just that with their investments during the past couple years.

    The point is that a worst case exit needs to be decided on before you enter the trade. Not after you are sitting in that burning car.

    Here's one to potentially watch unfold as the years roll by . . . Will gold be too expensive at $1500 / oz? How 'bout 2000 / oz? 3000? 4000?

    And no, I don't own any gold. After all, it's too expensive!

    Good Luck

    Posted 1 month ago #

  3. roughbert
    Member

    Fred, that is a good question. Does your method rely on generating buy signal from a SP/MA crossover? If so, then by delaying your entry must dilute the effectiveness of your method. The irritating phrase "plan your trade, trade your plan" springs to mind! But there is nothing to say that it won't work, if the SP remains north of the MA then your risk is that you will not get a full bite of the potential profit in the trade.

    Posted 1 month ago #

  4. Donato
    Member

    Hi Rough . . .
    Please allow me the liberty of re-phrasing (part of) Fred's question: If an ETF has been above the 200 day MA for over a year, is it too late to buy in?

    Posted 1 month ago #

  5. roughbert
    Member

    Depends upon your method/plan I suppose. If your plan is to buy on a SP/MA crossover, then you won't be looking at SP > MA situations.

    If you just open you eyes and find that no, it wasn't a dream, you really did buy the fund which was over its 200day MA for a year, then that puts the focus on a) understanding the current dynamics b) your exit strategy. But I can't believe that anyone would want to buy a year after a buy signal - in other words, the plan has changed, something else is generating the buy signal.

    Posted 1 month ago #

  6. Donato
    Member

    Hi Rough . . .
    You see, I think we agree. It's really about risk management (exit strategy), not price levels.

    Posted 1 month ago #

  7. roughbert
    Member

    Donato, I think it's about the plan you are trading and also the buy signal. You have to buy and sell, so for sure they are both pretty important! The big thing is to know why you are buying and why you are selling. Trading a plan is a way of doing that. The alternative is "stick the tail on the donkey"!

    Posted 1 month ago #

  8. Donato
    Member

    So, Fred . . .
    Did you get that? You can either stick the tail on the donkey, or trade a plan (i.e. use risk management).

    Posted 1 month ago #

  9. fred h
    Member

    Thank you Donato and roughbert. I very much appreciated your responses. I am a psychologist, a kind of engineer.

    Posted 1 month ago #

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