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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: shasta23 who wrote (7622)	1/7/1998 6:07:00 PM
From: David R. Evans	Read Replies (5) \| Respond to of 12039

Hello Stefan, You could use stops as your exit strategy but I'm not sure I would suggest that as the way to go. I WOULD suggest using them at least when you first start trading for real. Once you get use to cutting your loses you can start going with mental stops. When people first start trading, those who use mental stops usually turn into LONG TERM TRADERS! Some of them realize this and learn to cut their losses and others just continue to lose money. Now, if you are trading say Dahl and you make a commitment to hold until you get a sell signal from Dahl, then you should hold. If you say that you will hold until EITHER you get a sell signal from Dahl OR you hit your 10% stop then you should sell as soon as one of those conditions are met. Yes, it's simple to say that you will sell when a 10% stop is hit BUT it's just as simple to say I will sell when any of the below conditions are met: 1. 10% stop is met. 2. StochRSI (14) crosses down through 70. 3. OBV crosses down through its 40 day MA. 4. 5 day EMA crosses down through the 13 day EMA. 5. MACD (8-17-9) crosses down through 0. 6. MACD (13-34-89) crosses down through 0. 7. Price crosses below SAR. 8. 5 day EMA crosses down through the 40 day EMA. 9. Price falls out of its Regression Channel. 10. StochRSI (8-5) crosses down through 70 or 80. Now, there are 10 different exit's I listed without much thought or effort. Please do not take this list as anything but what it was intended for, a list of possible exits. It is in no set order or preference. I just wanted to list some exits to get people thinking. If you used Dahl to get into a trade why not use Dahl to get out of the trade? If you used an EMA cross to get into a trade, why not use the reverse EMA cross to get out of the trade? The important thing about exits is to USE THEM! Always know when you are going to sell before you buy... Know what conditions you will be looking for and then react when those conditions are met. LOOK at the charts of your current holdings EVERY NIGHT and let the charts tell you when to sell. I know there are people out there who like to pick a price or percentage gain as a point of exit and that's fine BUT I've always felt that the chart should tell you when it's time to go... After all, the chart told you when it was time to get in right? Exits are as hard or as easy as you want to make them. There is no black magic here, just common sense. The magic is in the charts. Our job is to read them. Now that I've said all of that let me tell you the real secret of exits...... Know your time frames. Example: Let's once again look at IBM. Put up one year's worth of IBM data (1997) and look at it. Put up Dahl, OBV and it's 40 ma, MACD (13-34-89), MACD (8-17-9), StochRSI (14). Put up the two MACD's as histograms so they are easier to see. OK so we enter the year 1997 on 1/2/97 and already we have mixed signals. Both MACD's are short, as is the OBV-40MA yet Dahl is long. We can see that a few of the indicators look ready to turn long BUT for now we will move on. On 3-21-97 StochRSI (14) came very close to giving us a buy signal. It was one of those cases where it just didn't drop far enough (30.9356) to get a 30 cross. For the sake of this example let's make believe it did give us a buy and we entered the trade. Now, our mission is to see WHEN should we sell. Please note that StochRSI (14) is the ONLY indicator on the screen that's long at this point. I am not interested in systems or true buy signals for this example, just exits.. OK so we are long IBM with an entry of $66.25 and everything is going fine. On 4/8/97 we get a buy signal from MACD (8-17-9) at $68.31. On 4/23/97 I get a buy from MACD (13-34-89) at $71.17, and on 4/24/97 I get a buy from OBV at $$76.81. Finally on 5/5/97 I get a buy from Dahl at $83.06 to complete my buy picture. Now ALL my indicators are long and I'm as happy as a lark. Now the exit work comes in. Before I go any further please note that I am using the close price from the day of the signal in this example. THIS IS NOT the way you would evaluate any system!!! I am just using these prices to make it easy on myself... OK so we are long IBM and all our indicators are singing our song until 5/16/97 when MACD (8-17-9) hits a sour note. It starts yelling for us to sell and we are faced with out first major decision. IMB is sitting at $85 so we have a profit of $18.75 in a trade lasting roughly 2 Months. Do you sell or hold? Well to answer that question you have to first answer this one. How long do you like to stay in a trade? You already have a nice profit so that's not holding you. Let's say you continue on and wait for the next signal. That next signal cones on 5/20/97 when StochRSI (14) tell you to sell at $86.87. Now what do you do? Your two shorter-term indicators have both told you to exit while the three longer-term indicators are saying hang in there. What way would you go? Once again the answer has to be rooted in your personality. What type of trader are you and what type of time frames are you looking for? If you follow this exercise to it's conclusion you will see that in this example you were better off trusting the longer term indicators because they would have kept you in until $99.93 (MACD (13-34-89), $97 (OBV) and $101.68 (Dahl). Of course we can not say for sure what you would have done with your money if you sold at the first exit and put it into another stock. The only way you will know the type of trader you REALLY ARE is to trade. You may think you are one type but Mr. Market has a way of finding out the truth. Does this help? Dave Evans