During Times of Uncertainty, Stop-Loss Strategies Are Crucial

Mike Turner |

There is an old, old saying that goes like this: "A stopped clock is right twice a day." Depending on the type of clock, it might be right only once a day.

There are those who say this market has gone too far, too fast, and will significantly correct. They might be right.

There are those who say the market always reverts to its mean and that reversion to the mean is long, long overdue. They might be right, too.

Then, there are those who say the economy is growing, unemployment is dropping, inflation is non-existent, the economic future is blazingly bright, so now is the time to BUY! BUY! BUY! Even these people could, I suppose, be right.

But, the big question is, "What if they are wrong for a long period of time?" Could the market crash tomorrow morning? Well, I suppose it could, but do you really think it will? I suppose we could throw every penny we have into the market assuming we will never experience a 2008 again, but can you really take on that much risk?

I have said many times, but it is worth repeating yet again, "I am a long-term investor... one-week-at-a-time!"

Each weekend, I study the output from Equity Analyzer, Market Forecaster and Equity Forecaster. If the result of that analysis says to buy or to sell, I trade accordingly. But, in all cases, I assume the market could reverse course at any moment and begin a significant and sustained trend in the opposite direction. All of my long biased trades would be wrong and all of my short biased trades would be wrong. This is precisely why I have developed a very sophisticated stop loss strategy where I set my stops just below each holding's 'normal' implied volatility and adjust those stops every week.

At the moment, in the Top 15 portfolio, we are about 99% invested with an average of about 15% profit in each position, with some positions approaching 40% in unrealized gains. There are a couple of changes we plan to make this week. We'll raise some stops and we'll consider (but may not) taking some profits off the table. We do not ascribe to the 'stopped clock', 'reversion-to-the-mean', 'buy-and-hold' strategies. We have a set of rules that are dynamic and move as the markets move. As long as the market is moving higher, we will take advantage of that trend. If it reverses, our stops will keep us within our defined risk parameters. If a stock falls out of the top 100, we will look for a replacement. In other words, our trading strategy is 'business-as-usual' and not hyperventilating over analyst reports or doom-and-gloomers who will, at some point in the future be right. Likewise, we will never put ourselves into a situation where we hold on to positions regardless of the direction of the market. Those buy-and-hold investors are on borrowed time, because time will circle around at some point to match up with the doom-and-gloom stopped clock types.

We trade the trend and let momentum carry the day. It is a smart, easy-to-use and very effective strategy. I strongly suggest you incorporate it into your trading life.

Final Thoughts...

We have so much going on that I desperately want to tell you about. But, these 'deals' are still a few days away and I have sworn to my staff that I would not say anything until we are completely ready. However, I can give you a hint or two...

For those of you who have wanted us to include some options strategies into our services... oh... boy... I think you're going to REALLY like what we are about to launch. It is unprecedented. I can't tell you exactly when this is going to happen, but it will be very soon.

We are launching our first "Live Trading" session tomorrow (Monday) and I can't wait to see how this goes. We have never offered this kind of one-on-one service and since it is live and not rehearsed, there is no telling how it will go. I guess it could go poorly, but I have a lot of faith that we'll have a blast and hopefully pick some trades that prove to be very, very profitable for our attendees.

There are a couple of other 'deals' in the works that I can't even hint about. I will fill you in on the details as they transpire.

 

I can tell you this... Our tools have been evaluated by some of the biggest and best financial services organizations in the world and they have concluded that our tools are "head-and-shoulders" above all other individual investor tools on the market. I certainly believe that, but it is great to hear from organizations that evaluate investor tools, to tell us that. No... I can't name names... not yet.

Have a great week in the market!

Your looking-forward-to-sharing-some-space-in-my-personal-trading-room portfolio manager,

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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