Putting in sell stops below your stock ETFs

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Kbg
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Re: Putting in sell stops below your stock ETFs

Post by Kbg » Wed May 06, 2015 11:51 am

With regard to stop losses...they pretty much do nothing but decrease performance in any system and MAY reduce DD depending on how they are done. In applying them I believe you are nuts if you don't do some backtesting as to what rules are you going to use for exit and entry. "I think I will get out here and get back in there" is a 99% guaranteed recipe for poorer performance. And they really don't make a lot of sense to me when using a PP for a host of reasons.
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Re: Putting in sell stops below your stock ETFs

Post by Tyler » Wed May 06, 2015 12:18 pm

ochotona wrote: But what if the losses on the stock side of the PP during the 2007-2009 crisis had been limited by a firebrake The results would have been even better. That was a pretty easy case, a -20% sell stop would've worked like a champ, it would've triggered in the last few days of September 2008, after the Lehman debacle.
Panic selling your entire stock allocation near a market bottom with no real plan for getting back in pretty much guarantees that while the short term loss will have been less, your long-term gains will have been irreparably harmed. Further, assuming it's a taxable account and you've been invested a while, you're also stuck with a massive tax bill.  So when you do eventually buy back in, you have significantly less purchasing power.

If it helps you sleep at night, by all means put whatever protections in place that you like. But a good rule of thumb is that you lose money every time you touch your investments. Humans are just not particularly efficient.
Last edited by Tyler on Wed May 06, 2015 1:08 pm, edited 1 time in total.
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LC475
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Re: Putting in sell stops below your stock ETFs

Post by LC475 » Wed May 06, 2015 3:29 pm

I agree with the naysayers about the exit plan also needing a re-entry plan.  I also agree with not messing with the orthodox PP with stops at all, but for the sake of discussion:

What about re-entering after six months?  This would have "worked like a champ" in 2008-9, right?

Automatically sell all stocks upon a 20% decline from top.
Automatically buy back into stocks exactly 182 days later.

Would backtesting show this to be effective?
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Re: Putting in sell stops below your stock ETFs

Post by ochotona » Wed May 06, 2015 5:18 pm

LC475 wrote: I agree with the naysayers about the exit plan also needing a re-entry plan.  I also agree with not messing with the orthodox PP with stops at all, but for the sake of discussion:

What about re-entering after six months?  This would have "worked like a champ" in 2008-9, right?

Automatically sell all stocks upon a 20% decline from top.
Automatically buy back into stocks exactly 182 days later.

Would backtesting show this to be effective?
Sorry I don't recall the name of the author of this momentum strategy, but it was posted here somewhere. You choose one day a month to examine the 300 day SMA, and if it's above you buy, if it's below you sell. That resulted in about monthly trades, and someone showed it theoretically improved on the PP.

However... trading every month is nutty. Too much for me. But a -20% stop would only be hit every few years. Then you only have to answer the question, "how to get back in?", then once in you'd probably stay in for years again.

Maybe the 300 SMA technique PLUS waiting a period of time, because the 2000-2002 event was very jagged, and it would've caught the 300 SMA in a bear trap. But, if you use "sell at -20%, then rebuy at 300 day SMA cross but no sooner than 10 months" then you'd be OK. That would've saved the user a lot of loss.

Have to run. No time to work on this one right now. Interesting ideas.My sell stop orders remain!
Last edited by ochotona on Sat May 16, 2015 4:52 pm, edited 1 time in total.
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Re: Putting in sell stops below your stock ETFs

Post by ochotona » Wed May 06, 2015 8:43 pm

Looking at nine -20% or greater S&P500 bears, 1957 to 2009. Sometimes sell stop at -20% followed by buy at 300 day SMA cross works, sometimes it doesn't. More benefits during bad bears, doesn't react fast enough during mild ones. Will tabulate results later. Cool looking at data from way you were born.

Another idea occurs to me... the sell stops don't have to sell 100% of your holdings.
Last edited by ochotona on Thu May 07, 2015 8:28 am, edited 1 time in total.
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Re: Putting in sell stops below your stock ETFs

Post by ochotona » Sat May 09, 2015 8:11 am

S&P500 study

sell signal: -20% from peak
buy signal:  price crosses 300 day SMA, evaluate first of the month only

Year                  sell        buy      gain/loss
1957              38.98    43.69    -11%
1962              57.27    66.31    -14%
1966              75.10    86.43    -13%
69-70            85.88    87.47    -2%
73-74            93.90      83.03    +13%
80-82          111.59    118.25    -6%
1987            224.84    272.59  -18%
00-02        1180.16    946.11  +25%
07-09        1436.27  1002.63  +43%

+2% gain over the past 58 years. CAGR 0.03%.

The teaser though... it has worked on the biggest bear markets. But you don't know what kind of bear market you have by the time the sell signal pops up.  :-\
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Re: Putting in sell stops below your stock ETFs

Post by Kbg » Sat May 09, 2015 2:17 pm

ochotona wrote: S&P500 study

sell signal: -20% from peak
buy signal:  price crosses 300 day SMA, evaluate first of the month only

Year                  sell        buy      gain/loss
1957              38.98    43.69    -11%
1962              57.27    66.31    -14%
1966              75.10    86.43    -13%
69-70            85.88    87.47    -2%
73-74            93.90      83.03    +13%
80-82          111.59    118.25    -6%
1987            224.84    272.59  -18%
00-02        1180.16    946.11  +25%
07-09        1436.27  1002.63  +43%

+2% gain over the past 58 years. CAGR 0.03%.

The teaser though... it has worked on the biggest bear markets. But you don't know what kind of bear market you have by the time the sell signal pops up.  :-\
O,

Good post. You just identified the main issue. If you are looking to time the S&P go over to The Motley Fool Mechanical Investing Board and look up "Bear Catchers." There are better methods but for John Q Public Bear Catchers is a good and reasonably easy method to track and follow...and extensively back tested.

Oh, and don't forget to subtract tax effects.
Last edited by Kbg on Sat May 09, 2015 2:20 pm, edited 1 time in total.
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Re: Putting in sell stops below your stock ETFs

Post by barrett » Sat May 09, 2015 7:31 pm

I'm with Tyler on this one. If stocks dropped 20%, I think I'd be buying, not selling. That worked great for me in 2011 and then I waited around for three years for another damn correction. Finally found the PP and I don't think much about stocks at this point. I think the only way buying the dips really kills you is if we get into a Great Depression scenario and you just keep rebalancing into an asset until it has lost most of its value and you've chased the dips all the way to the bottom.
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Re: Putting in sell stops below your stock ETFs

Post by MachineGhost » Sat May 16, 2015 4:32 pm

20% is a huge move for an index.  I wouldn't use a trailing stock that huge on one.  Trendfollowing works much better.

20% not so much on an individual stock.

Use a 25% close only trailing stop.  It is remarkably robust.
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Re: Putting in sell stops below your stock ETFs

Post by ochotona » Sat May 16, 2015 4:51 pm

I took my stops off.
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Re: Putting in sell stops below your stock ETFs

Post by mathjak107 » Sat Jun 27, 2015 5:15 pm

here is the problem when trying to dodge the bullet.

you have to be a nervous nellie type to bail before things deteriorate ,especially while new highs are stuill being hit.

but to buy back in when it looks like we are headed to hell takes nerves of steel .

rarely does one person have both properties.
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Re: Putting in sell stops below your stock ETFs

Post by buddtholomew » Sat Jun 27, 2015 5:59 pm

mathjak107 wrote: here is the problem when trying to dodge the bullet.

you have to be a nervous nellie type to bail before things deteriorate ,especially while new highs are stuill being hit.

but to buy back in when it looks like we are headed to hell takes nerves of steel .

rarely does one person have both properties.
In other words, you have to be lucky twice. Once when you sell and again when you buy to circumvent any losses.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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