Exiting Stock Positions When Stock Market Indicator Goes Negative
First off, I’m a regular reader, and I’d like to say thanks for all of the content that you put out. It’s really helped me to get my head in the game in terms of trend following.
I have a quick question that I think might be helpful for your readers to hear the answer to. Obviously, I’m not asking for specific advice, but more of a general sense of your approach: when your particular existing positions are still trending your way, but your indicator now deems the market as unhealthy, what’s your move? Do you just not take new positions, or do you (either slowly or quickly) close out your existing positions even though they’re still winning?
Thanks for your work,
I had this question posed to me this morning and is a great question. First of all the indicator I use to determine where we are in the market is not perfect and there will be whip saw trades. However and a big however, when the market does get into a bear market it stands the distinct possibility to keep you on the right side of the market. More so I invite you to tweak the indicator parameters to fit your own personal risk and personality.
Answering the question, I try to be a very prudent trader. I have seen the destruction a bear market can do to ones personality and financial resources. I tighten up my stops and do not take new positions when I have a clustering of 4 distribution days and if the Andrew Abraham Buy indicator goes negative I trail my positions if I am still in them with a tighter stop.
I invite you to watch my recent Metastock webinar in which I discussed this.