Jen Ryan of Dow Jones Newswires wrote an article on using a disciplined exit strategy when investing in exchange-traded funds. We spoke to her about the 200-day moving average.
"Lydon says he’ll keep a watchful eye on the 50-day moving average, but if the ETF moves below the 200-day average the believes it’s time to sell. He argues that at 8% stop-loss … allows a comfortable amount of give-back.
A shorter term stop-loss, such as 5%, could be too low since markets often have a 3% to 5% correction before they move on and hit new highs, he says.
Take Japan for instance. Over past three years the iShares MSCI Japan Index Fund (EWJ) … has risen more than 27%, according to Morningstar.com. Recently, though, the ETF dropped about 6% from its highs and if it were to go below 8% Lydon says he’s prepared to sell."
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.