Let winners run in a bear market?

[disarray]

i'm working on my stop methods at the moment and am thinking that with the market the way it is, it would be much better to play much tighter stops than usual.

my recent breakaways (UMC & PRC) have me wondering if a 2 or 3 day low would be more effective than a 6 day low stop loss because of the state of the market. we have years of ranging ahead so market volatility could really hurt profits if you let your winners run straight back into market madness.

i'm trading micro patterns (i subscribe to the chartist) so i generally hold for a short timeframe. i don't day trade, but i'd be interested to hear daytraders stop techniques as i've set a quick trade up on PRC filling the gap and have time to keep an eye on it.

does anyone else change their stop strategy according to market conditions? all opinions on stops welcome

 

[MRC & Co]

I am surprised this topic has not come up more often.

I personally think in this environment, it is vital to use tight stops and high trade frequency.

A small ATR, maybe 3 which will take into account the volatility is one idea.

Though, I prefer a discretionary approach, leaving enough room to move (generally somewhere around a 2 day average), but also tightening dependent on volume, spread, close and patterns, support and resistance.

For example, if I am short and stock falls, then starts to form a flag or an upward wedge, I will give it a bit more room to move, especially if volume is drying up.

This is the most pivitol part of successful and consistent trading IMHO and has to be adapted to suit the environment.

I also like to hedge, shorts and longs and try not to have more than 3x more of one open, than the other. For example, if I have 3 longs, I will try not move above 9 shorts unless I can find another long set-up to add to hedge.

Sure others disagree, but this is just my take on it.

Good topic disarray, I hope it generates some good discussion.

 

[Neutral]

I also like to hedge, shorts and longs and try not to have more than 3x more of one open, than the other. For example, if I have 3 longs, I will try not move above 9 shorts unless I can find another long set-up to add to hedge.

Just to confirm, you cannot short a stock you hold can you?

 

[nizar]

I agree with the thread title.
If your system is designed to profit from trends then continue to let your winners run as this is where the money will be made.

There are always booming sectors in any market. Now its energy/resources. During the 2000-2002 bearmarket it was property trusts.

The key is identifying those booming sectors and loading up on champion stocks.

 

[nomore4s]

Just to confirm, you cannot short a stock you hold can you?

You can with CFDs.

eg. You hold CBA as a long term hold but don't want to sell due to tax reasons but think it's going to go down. You can short it via CFDs to hedge against a fall in the sp.

Just an example.

 

[MichaelD]

The natural reaction in a bear market is to tighten stops. This is probably the wrong thing to do as the tighter the stop relative to market volatility the more likely it is to whipsaw.

 

[websman]

Sell em' while you got a profit!!!

 

[motorway]

Here is a PDF

That might be useful

54 pages on stop techniques and psychology

http://www.fullermoney.com/content/...onsFromInconsistentForecastingSkillsNov07.pdf

motorway

 

[MRC & Co]

The natural reaction in a bear market is to tighten stops. This is probably the wrong thing to do as the tighter the stop relative to market volatility the more likely it is to whipsaw.

Yes, naturally, you will be whipsawed out (I've had my fair share of that lately), that is why it is important to take into account volatility. That being said, my method is very discretionary.

I'm all about decreasing my risk in this environment.

 

[slackjaw]

i'm trading micro patterns (i subscribe to the chartist) ....

Are you making any money from it? A friend of mine was subscribed to the chartist so I got to flick through his site, and his hitrate is only 20 - 30 %

Maybe its my lack of experience talking here, but knowing what kind of market we are in (bull or bear), surely could you not throw darts at a stockboard while blindfolded, and hit at least or better than 50% ?? Maybe this should be my trading plan

I agree with Michael D about tightening stops. Most times I let a tight stop pull me from a position they come back my way shortly afterwards, though I would like to know what he recommends in their place

 

[MRC & Co]

^^^^^^^^^^^^

Look at win %.

Now look at average win to average loss.

Which sectors are running now fellas?

Even biotech, pharms etc on the NASDAQ are struggling to retain momentum.

Leaving trend following systems, at least over the last few weeks (how much longer will this last?) very poor performers IMO. Then again, I don't use one and my methods are no better ATM, ha ha.

 

[RobinHood]

A friend of mine was subscribed to the chartist so I got to flick through his site, and his hitrate is only 20 - 30 %

That's pretty bad...

here's an equity graph of a "system" of mine with a 15%... somehow still made money :/
http://2.bp.blogspot.com/_znF9pQ5oe98/SEKcsv6j2tI/AAAAAAAAAFg/1y2Cm-xhSpU/s1600/unoptimized.PNG

This is just to illustrate.
Don't expect anything amazing in terms of your accuracy rate when it comes to trend following. Do expect a large R:R and corresponding drawdown. 50% is amazing (for trend-following) and no a monkey could not do better. He will not get the same R:R.

Another thing with the longer-term trend following is you should expect to be in cash a large amount of the time, but when the market environment is in your favor you should also expect to get heavily involved make huge returns (See Dan Zanger and read all his interviews for good insight). The only trick/problem is reading the environment (comes with experience).