Mark Booker was the manager of Trust Fund «Midas» since 1992. The Fund was recently named the best in the world for his 5-year average yield of 26.6%. Mark Booker began trading in 16 years. He also founded the Association of Investment Research to fund research trading systems on trade in shares, treasury bills and currency.
Most investors and traders spend too much time focusing on how to enter the market and too little time to find the best way out of profitable positions. What is particularly interesting about this neglect - is that the majority of traders makes a huge portion of its profits only a few transactions in which the market has moved in their favor. Thus, the majority of traders, in fact, would have greater success by focusing on the best exit from lucrative deals than if they continue to practice their techniques entrance. I would like to briefly go through some of our «methods» sliding stop orders to help traders learn to withdraw from the lucrative deals with much more useful. We use many methods of moving the stop-orders, but the simple rule of thumb, which we present here should greatly enhance the effectiveness of trade for most traders.
First, patience, and then carefully
The method that we are going to briefly cover, used until the market-based instruments will not be perekuplennym (for a rising trend):
- Waiting for a breakthrough three -, four-week or longer to enter the consolidation of the market (in the case of long-term trends);
- Placing stop orders below the minimum of the consolidation by the time when you entered the market
This requires patience for the first quarter of the movement after you have entered the market (for a variety of market instruments and time formats that can be a different number of bars). However, when the market starts to become a tool perekuplennym, it should be much closer to the stop-order and the current level.
As soon as the market becomes a tool perekuplennym, it may begin a correction or consolidation. Consolidation may take different times for different markets, and the meaning of sliding stop order is to maintain an open position until there is a likelihood of further movement, regardless of how much is the price. This is the meaning of the expression «to allow profits to grow». Thus, when the market becomes perekuplennym tool, based on technical or fundamental factors, we use the technique of sliding stop order is different from the one that we used before the market became overvalued tool. When the market becomes overvalued tool we have for any decline at the close of a period of two consecutive days (for daily schedule). Once we have a two-day decline in a row at the closing, we believe that market-based instruments are in correct. As soon as the market adjusted the instrument, we expect to see when it will revert to the new maximum. For any new peak followed by a correction, we then move our stop-order staggered at least this correction and we will continue to move it this way, with each correction and then the new maximum. In this way we continue to wait for quite a significant support level is broken down in the traffic before leaving out of the market, but we have moved our stop-order and a much more aggressive than it was before the market became overvalued tool.
Examples
Let's take a look how it works in the real market, using the actual transaction, we have carried out since 1999.
While price is not reached perekuplennosti, we place a stop order at least consolidation, which broke up the price. Once the price reached a level perekuplennosti, on any grounds, a stop order below the minimum established by the last correction.
The price of shares «Adobe» (ADBE) broke to new 52-week peak in March 1999. And then develop a good narrow trading range from late March to mid April, creating the type of model «flag», which we watched for the signal input. This market-based instruments showed a strong relative effect, the strong fundamentals (quarterly growth in revenue, estimates of the growth of income over the next year, has been a leader in its field, etc.), which corresponded to most of our criteria for market-based instruments with great potential for further upward movement .
When the four-week consolidation was broken up in April (around 30), we started buying ADBE. The first three or four trading range after the entry occurred in May when the price ADBE fell from 40.53 to 33 1 / 2, which was quite a big fall. In June, the price came out of that consolidation to a new peak, and we used our first stop to the movement of the warrant, using the rolling stop-order at 33 and, finally, were able to «protect» the profit by setting a stop order above the price of our entrance. Other three-four-shaped consolidation in the July-August and August-September, allowing us to again raise the stop-order in our rule «three or four consolidation and a new maximum».
Then in October ADBE start trading in the zone perekuplennosti in accordance with basic data (P / E above 40). The value 40 was the maximum value of P / E (price / income) over the past three years. This implies that ADBE potentially becoming overvalued and could be a serious correction. Thus, in October, we started using our method is more approximate sliding stop-orders for this market-based instruments. Every time ADBE did decline two days later and then breaks to a new peak, we moved our stop order below the minimum of this correction.
1 and 2 November, the price ADBE made two consecutive decline. November 4, ADBE fell to 67 1 / 8 and then made a new maximum. This was not a three-week consolidation, but as we have a potentially perekuplennoy territory, we used a protective stop-order at around 66 3 / 4 (just below 67 1 / 8). Prices continued to rise to 79 before the start of a major correction, and our position has been closed to stop the order of 66 3 / 4 in early December, ADBE started as a deep decline. Although we have not caught the summit, we have captured the lion's share of the good traffic, and we captured most of the traffic, using a rolling stop-order, than if we started immediately to close the position in October, when market-based instruments only began to look perekuplennym.
As a second example, consider the foreign shares, traded on the NASDAQ - «Business Objects» (BOBJ). In mid-June, BOBJ broke up two months of consolidation, with large volume. Its growth has been supported by many technical and fundamental factors of our criteria for potential growth. We started to buy BOBJ about the level of 30. BOBJ has made a new maximum in July, adjusted to a level 37 and then consolidated for two months before the re-achievement of a new 52-week maximum, which allowed us to place our rolling stop-order immediately below 37, will protect our profitability.
BOBJ has gone to endless growth, and in November he had reached the level perekuplennosti, based on the rate of P / E (which exceeded the projected income growth over the next year and the historical maximum PE). Thus, in November we moved to our technology closer stop orders. In January of 2000. Our position has been closed by stop-order on the 115, below the minimum of 14 December 1999. And we get a very good profit.
Conclusion
Keep in mind that no technique of sliding stop order is not perfect. The sliding stop-order and will often close your positions before the market will continue to further movement in that direction. But more often, moving the stop order will not allow the market to collect a substantial portion of the profit already. You can always re-enter the market when market conditions meet your criteria for a new breakthrough. Therefore, the sliding stop-order and not only will help your profits grow and prevent the loss of earned huge profits, but they also help you focus your shopping on the capital market instruments, which continue at present to develop the trend in and out of the market instruments that are in deep correction.
Most investors and traders spend too much time focusing on how to enter the market and too little time to find the best way out of profitable positions. What is particularly interesting about this neglect - is that the majority of traders makes a huge portion of its profits only a few transactions in which the market has moved in their favor. Thus, the majority of traders, in fact, would have greater success by focusing on the best exit from lucrative deals than if they continue to practice their techniques entrance. I would like to briefly go through some of our «methods» sliding stop orders to help traders learn to withdraw from the lucrative deals with much more useful. We use many methods of moving the stop-orders, but the simple rule of thumb, which we present here should greatly enhance the effectiveness of trade for most traders.
First, patience, and then carefully
The method that we are going to briefly cover, used until the market-based instruments will not be perekuplennym (for a rising trend):
- Waiting for a breakthrough three -, four-week or longer to enter the consolidation of the market (in the case of long-term trends);
- Placing stop orders below the minimum of the consolidation by the time when you entered the market
This requires patience for the first quarter of the movement after you have entered the market (for a variety of market instruments and time formats that can be a different number of bars). However, when the market starts to become a tool perekuplennym, it should be much closer to the stop-order and the current level.
As soon as the market becomes a tool perekuplennym, it may begin a correction or consolidation. Consolidation may take different times for different markets, and the meaning of sliding stop order is to maintain an open position until there is a likelihood of further movement, regardless of how much is the price. This is the meaning of the expression «to allow profits to grow». Thus, when the market becomes perekuplennym tool, based on technical or fundamental factors, we use the technique of sliding stop order is different from the one that we used before the market became overvalued tool. When the market becomes overvalued tool we have for any decline at the close of a period of two consecutive days (for daily schedule). Once we have a two-day decline in a row at the closing, we believe that market-based instruments are in correct. As soon as the market adjusted the instrument, we expect to see when it will revert to the new maximum. For any new peak followed by a correction, we then move our stop-order staggered at least this correction and we will continue to move it this way, with each correction and then the new maximum. In this way we continue to wait for quite a significant support level is broken down in the traffic before leaving out of the market, but we have moved our stop-order and a much more aggressive than it was before the market became overvalued tool.
ExamplesLet's take a look how it works in the real market, using the actual transaction, we have carried out since 1999.
While price is not reached perekuplennosti, we place a stop order at least consolidation, which broke up the price. Once the price reached a level perekuplennosti, on any grounds, a stop order below the minimum established by the last correction.
The price of shares «Adobe» (ADBE) broke to new 52-week peak in March 1999. And then develop a good narrow trading range from late March to mid April, creating the type of model «flag», which we watched for the signal input. This market-based instruments showed a strong relative effect, the strong fundamentals (quarterly growth in revenue, estimates of the growth of income over the next year, has been a leader in its field, etc.), which corresponded to most of our criteria for market-based instruments with great potential for further upward movement .
When the four-week consolidation was broken up in April (around 30), we started buying ADBE. The first three or four trading range after the entry occurred in May when the price ADBE fell from 40.53 to 33 1 / 2, which was quite a big fall. In June, the price came out of that consolidation to a new peak, and we used our first stop to the movement of the warrant, using the rolling stop-order at 33 and, finally, were able to «protect» the profit by setting a stop order above the price of our entrance. Other three-four-shaped consolidation in the July-August and August-September, allowing us to again raise the stop-order in our rule «three or four consolidation and a new maximum».
Then in October ADBE start trading in the zone perekuplennosti in accordance with basic data (P / E above 40). The value 40 was the maximum value of P / E (price / income) over the past three years. This implies that ADBE potentially becoming overvalued and could be a serious correction. Thus, in October, we started using our method is more approximate sliding stop-orders for this market-based instruments. Every time ADBE did decline two days later and then breaks to a new peak, we moved our stop order below the minimum of this correction.
1 and 2 November, the price ADBE made two consecutive decline. November 4, ADBE fell to 67 1 / 8 and then made a new maximum. This was not a three-week consolidation, but as we have a potentially perekuplennoy territory, we used a protective stop-order at around 66 3 / 4 (just below 67 1 / 8). Prices continued to rise to 79 before the start of a major correction, and our position has been closed to stop the order of 66 3 / 4 in early December, ADBE started as a deep decline. Although we have not caught the summit, we have captured the lion's share of the good traffic, and we captured most of the traffic, using a rolling stop-order, than if we started immediately to close the position in October, when market-based instruments only began to look perekuplennym.
As a second example, consider the foreign shares, traded on the NASDAQ - «Business Objects» (BOBJ). In mid-June, BOBJ broke up two months of consolidation, with large volume. Its growth has been supported by many technical and fundamental factors of our criteria for potential growth. We started to buy BOBJ about the level of 30. BOBJ has made a new maximum in July, adjusted to a level 37 and then consolidated for two months before the re-achievement of a new 52-week maximum, which allowed us to place our rolling stop-order immediately below 37, will protect our profitability.BOBJ has gone to endless growth, and in November he had reached the level perekuplennosti, based on the rate of P / E (which exceeded the projected income growth over the next year and the historical maximum PE). Thus, in November we moved to our technology closer stop orders. In January of 2000. Our position has been closed by stop-order on the 115, below the minimum of 14 December 1999. And we get a very good profit.
Conclusion
Keep in mind that no technique of sliding stop order is not perfect. The sliding stop-order and will often close your positions before the market will continue to further movement in that direction. But more often, moving the stop order will not allow the market to collect a substantial portion of the profit already. You can always re-enter the market when market conditions meet your criteria for a new breakthrough. Therefore, the sliding stop-order and not only will help your profits grow and prevent the loss of earned huge profits, but they also help you focus your shopping on the capital market instruments, which continue at present to develop the trend in and out of the market instruments that are in deep correction.
Mark Booker
www.hardrightedge.com
www.hardrightedge.com
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