Regardless if you are an active trader or a long term investor of exchange traded funds (ETFs), it makes sense to have an exit strategy for every holding within your portfolio, long or short.
When you have an exit strategy, you know when and why you are going to sell, and this keeps your decisions rational, it removes any guessing and then you know what to do when the markets are moving. This way you aren’t left panicking at a market bottom.
Our strategy for buying and selling ETFs is to use the 200-day moving average. Then we set a stop-loss at 8%. By selling when there is an 8% slip off the recent high, not only do you preserve the lion’s share of profits, you can leave the emotions out of the equation.
As a concept, having an exit strategy is just an extension of having an entering plan. Perhaps the technical signals that led you into an investment turn negative; the 200-day moving average would have led you to an exit before the losses became too great.
We recently discussed our strategy with Eric L. Reiner of TD Ameritrade. His article highlights our investment strategy and tells TD Ameritrade clients how to implement the strategy with their trading tools.
Remember to keep an eye on the market trends and to stay focused on your strategy, as this will help sustain your portfolios’ value while keeping losses to a minimum.
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.