There is no strategy to get out of losses. In a way I have a buy and hold mentality (keep costs low etc...boglehead). I understand that if you own the broad market you will suffer periods of significant losses. I do not use leverage and I make sure that I have enough liquidity to buy market corrections. The biggest thing is to put myself in a financial position to not panic during market corrections. I have no mortgage etc....
As far as winners are concerned, I look at the % allocation of my equity portfolio. If it gets to near 65% of my portfolio then I begin to take chips off the table. Also, when Europe was imploding and Japan Tsunami....I trimmed my exposure rather aggressively but made sure I got back in. One year my most aggressive buys were when S&P downgraded the U.S. I don't look at charts for this.
I began to do this because I don't want to live thru another 2008/09. I will take chips off the table. When I look back at my investing career I have made money when stocks were on sale. Currently I have 40% of my portfolio dedicated to equities (almost all VTI). I am scared like everybody else. I once was a very profitable trader and now I am reinventing myself. With 40% in equity exposure right now, I still can participate in the upside and hopefully will make wise decisions in a market correction (which will happen from time to time). Key for this strategy is don't use leverage.
The Market is Smarter than You Are
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I have finally got enough posts to show a chart. I would like to post This chart I have used for timing entries and exits for a Swing trade.
the chart is primarily based on Bollinger bands (BB's), MACD (with no signal line), Slow Stochastic with a 30 day look back to make a smoother curve. SMA's and position of the price relative to the BB lines and SMA's
This chart is useful for shorts as well...different set of rules but I can reasonably predict the end of a short.
But I will only show a positive swing breakout...I use CAT as the example only, I have been accused of cherry picking the ticker...this could not be further from the truth...CAT is not the best example but this chart has 2 swings in it
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My Buy rules are:
1. the BBwidth baseline to its chart shows when to expect a breakout
2. the Slow sto generally leads a breakout with a positive slope on a breakout (or a negative slope in a plummet)
3. MACD usually follows the Slow Sto with a slope in the same direction.
4. The BBwidth curve is the trigger to a buy or sell....It will show a sudden strong positive slope (no matter if it is a rise or fall in share price.
5. You do not make a trade unless #2 to #4 has happened....if any one condition does not happen you don't trade for a positive gain or a short as the case may be.
The first circle shows a small swing lasting about 2 weeks.
You can the Slow Sto lead the pack (note I use a 30day lookback instead of 14 for a smoother curve)...it has pegged over 80 which to me is very bullish.
Next is the MACD (I do not use a signal line rather I trend the MACD itself...it faollows the Slow Sto upward
Then the BBwidth breaks upward on July 9 and that is the trigger to buy...somewhere around $240
the exit for this swing is quite clear too....it happens when all three indicators have a negative slope. If the slope of any of these indicators is flat or positive that is not a sell point...As Usual the BBwidth is the last to turn and is the trigger.
The gain for the 2 weeks would have been about $265 - 240 = $25 or about 10%
the second circle is another example
The buy point is clear on Aug 24 at about $280 ...again Slow Sto pegged above 80, followed by MACD then the BBwidth trigger...
the sell point is not as clear...one might sell on Oct10 or a day earlier for a small gain....I have 3 other charts I would consult to see if i would pull the trigger...and I would if the consensus of my charts said bear but notice how the BBwidth flattened immediately and the Slow Sto rose along with the MACD....with would take my finger off the finger until a more clear sell point was reached on about Jan 6....see how the Slow Sto was plummeting as well as the MACD but the BBwidth did not move until Jan 6.....(Btw: that is a sign of a short play: neg Slow Sto and MACD + pos BBwidth slope)
The gain for the 4 month and a bit would have been about $350 - 280 = $70 or about 25%
Actually there is a lot more information in this chart when you get used to using it. But this is enough to digest right now.
Try it on other tickers...you can see the parameters of each indicator on the left of their chart.
Hope you like the chart.
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