I have a question about the 8% stop loss when an ETF is still trading above the 200 day SMA. If you're stopped out of your position, when do you re-enter? How do you get those funds working for you again?
When an 8% loss is above the 200 day MA
(7 posts)
stvjohnsn
MemberPosted 2 years ago #Donato
MemberIf you know how to read candlesticks, look for reversal patterns.
But I used a method that borders on the primitive after the last big dip of Feb 5, 2010; and all of those positions are still alive and well. Pull a candle chart. Count back ten days. The highest high and the lowest low is your range. When the price breaks above the high of the range, buy. Repeat each day until you get an entry. Very simple. I like simple. It's so simple, you can't even use a calculator.
Although it sounds primitively simple, I got the inspiration from the Turtle Traders. And they did quite well for themselves! Now (mid March 2010) is probably not the best time to start using that entry strategy. You would need to wait for a pullback in the markets. But you probably get the idea.
Your stops, risk management, and share sizing are another matter.
Good Luck
Posted 2 years ago #jeffshepherd
MemberDonato,
Do you mean the highest high and lowest low within the 10 day period? Also do you take the range from the candlstick bodies or shadows? I would assume shadows as that will take into account the full range of movement.
Posted 2 years ago #Donato
MemberJeff,
Yes to the first question, and "shadows" for the second question.Ever look into the Turtle Traders? They employed a trend following strategy for trading commodities (futures). They had two entry points, one on a break of a twenty day range, the other on a break of a fifty five day range. There were some interesting conditions, but I don't want to get into that here. Plus, we're not trading futures contracts, we are trading ETF's (so it is simpler!).
The point is that I looked back on some charts and a break of a ten day range seemed like a nice compromise. Much longer and you leave a bunch on the table; much shorter and the trend may not have actually changed. If you study trend following strategies in general, you will find that they all have drawdowns in their accounts. So you still need to be mindful of your risk management; if you are not careful, the chop will eat you up.
I know it sounds too simple to be true, but look at any candlechart and check it out, it works for both directions (long or short). I don't think it works as well for stocks, but ETF's, by their very nature, tend to trend better. Remember, you are trying to catch the bigger and/or longer trends. Except for USO, I stay away from ETF's based in futures contracts now, I like the underlying to be stocks or an index.
If you had been using that entry strategy the last two years, you would have done very well. I came up with a whole trading strategy (three pages, and technically still in development) based around the original concepts of the Turtle Traders. The strategy can be reduced to about one paragraph, but it would take the other two and a half pages to understand that one paragraph. And you would need to understand the principles and psychology behind Turtle trading to fully understand the entire three pages.
The link to the PDF file below is where my inspiration came from. The file can be found at many web sites, I just did a quick search on Google and found this link first to copy and paste here:
https://www.bsp-capital.com/documents/turtlerules.pdf
I would recommend saving the file to your computer for easy reference. When you get to the part with all of the calculations to "normalize the dollar value of each commodity", you don't need to figure it out; you are not going to be trading futures contracts. For us, one dollar equals one dollar. All you need to know is that N = the 20 day ATR.
I could go on and on, but I think you will find the "book" to be a fascinating read. Enjoy!
Good Luck
Posted 2 years ago #jeffshepherd
MemberHi Donato,
Thanks for confirming what I thought, all the info and the link. I have downloaded the Turtle book and will read it with interest!!!
Jeff
Posted 2 years ago #stvjohnsn
MemberThanks for the info and clarification. Just so I'm sure I understand it though....there really isn't any significance in the "lowest low" from the prior ten days, right? Don't we only care about the "highest high"?
Posted 2 years ago #Donato
Member3-23-2010
Some of us like to play the market in both directions. For example, depending on how aggresive you are and your tolerance for risk, you may not want to enter the market long right now. Instead, you would wait for the next pull back to offer a lower risk entry (entering long on the break of a ten day high after the low). Even though that pullback may be small and short lived, if you're following trends, that beginning of that pullback will give you a trigger to enter short.Otherwise, no you don't need to worry about the break of the low in the range.
Good Luck
Posted 2 years ago #
