5) Being Right or Making Money – When to Sell (Exits, End of Uptrend) 2/2

So the tool for the selling is the same for the buying…your indicator for your trend. There are many punters who sell when they “feel” that the market is oversold (oh! Dun sell in when an oscillator eg RSI, Stochastic hits oversold an uptrend…), or when ost of us are badly “influenced” by negative headlines that a “correction” is near or the market has gone too hot etc…where the rationale for that oversold or too high etc…

Just let the market and the prevailing trend decide how strong and how long the current move will last, dont try to dictate how much you should earn this window. Let the markets decide. You just focus on your stops and risk management 🙂 Let me tell you, it can be pretty boring and you can get impatient keeping still…sitting and holding on to long positions… 

The view is that it is not worth attempting to predict when the next correction might occur. To do so would be to put one’s personal opinion ahead of the market. There are two types of participants. One uses her opinion to try to outthink the “market” and the other tries to emulate the market as much as possible by being a trend follower. While opinions can often be wrong, the market usually isn’t.”

Kevin Marder http://www.marketwatch.com/story/a-few-stock-leaders-show-fissures-2013-01-31 

Men who can be right and sit tight are uncommon. I found it one of the hardest things to learn. In a bull market your game is to buy and hold until you believe that the bull market is near it’s end. To do this you must study general conditions and not tips…” Jesse Livermore 

Since I used market breadth to measure trends (or market condition or sentiment), I use it to “time” my exits too. Here the same breadth chart vs the index again.

Breadth05Dec

Remember for buying there is a good time and price to buy? Similiarly here, a good time to sell/exit is when the trend ends, and a good price to sell? Same! Price confirmation! 

A good time to exit doesnt mean sell immediately…it must be confirmed by prices falling down. (yes, I buy on the way up and sell on the way down…) So this way, you keep riding the price trend with a close trailing stop. You only exit when both trend indicator and price is down. 

Lets complete the 5 steps with a brief touch on trailing stops. Trailing stops are often used to “lock” in profits, letting the counter runs its course while keeping a close eye on exiting…very very soon. Here’s 2 simple examples, Parabolic SAR and a Price channel as trailing stop. 

CMA STI TStop

One of the great myths of the stock market is that you have to be in the market all the time in order to be successful…sometimes “good defense is the best offense,” and there will be times when the market direction is not as obvious. During such an environment, being out of the market and in cash may be the wisest play. For this reason, underlying general market conditions will always be a key factor in any of our recommendations.” Gilmo Report http://www.gilmoreport.com/gilmoreport.html 

I have finished my 5 steps. Now is your turn to form your 5 steps. 🙂

While you are pondering about that…here a few good stuffs to read … 

Differs on everything, but agree on 1 thing…

http://www.trading-naked.com/The_Billionaire_Traders.htm 

http://thezikomoletter.com/2012/04/29/interviews-with-paul-tudor-jones-louis-bacon-bruce-kovner/

What’s so special about macro hedge fund managers?

..When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it. 

What’s your take on the next generation of managers?

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over…We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. 

You’re not necessarily a fan of hiring people straight out of business school.

Today there are young men and women graduating from college who have a tremendous work ethic, but they get lost trying to understand the logic behind a whole variety of market moves. While I’m a staunch advocate of higher education, there is no training – classroom or otherwise – that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it – a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value. 

Who are these 3?

http://www.businessinsider.com/richest-hedge-fund-managers-2012-9?op=1 

cheers and safe trading!

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