Forum Archive Index - September 2001

[Phaedrus <Phaedrus@techemail.com>]

Jefley,
       From what you say I gather that you wish to trade trends. There are many 
trend indicators - MetaStock has 26, not counting methods such as your idea of 
selling when x% down from a peak. This type of thing is easily coded into the 
form of an indicator. In the chart below I have used your suggestion to create 
a Trailing Stop 8% below the highest current peak. You would sell when the 
Close was below this line. 
 Trend indicators that I use include Directional Movement Indicator , Parabolic 
Stop and Reverse Indicator and Polarized Fractal Efficiency Indicator. Read 
about these at http://www.equis.com/free/taaz/ Most people use Moving averages 
of various types, though I tend not to. My favourite is the simplest of all 
Trend Indicators - Trendlines. As I hope I have demonstrated, these can be used 
for both Entry and Exit signals, though I find them most useful for exits. They 
are easily drawn by anyone, and are not subject to misinterpretation. In the 
RBC, AIA, CEN, GPG charts and others I have posted, note how use of a single 
simple trendline got you out not long after the peaks, and well before any 
meltdown. Use of the same simple technique is now getting you back in again, at 
considerably cheaper prices, that we hope will prove to be not too much above 
the lowest price reached. Only time will tell.
 One point I have not mentioned is that all these entries should be protected 
by execution of a Stop-loss sale triggered if the price should Close below the 
pivot point Low. This means that if any of these Buy signals should be proved 
"wrong" by future price action, we exit the trade before we lose too much 
money. Typically this would not happen very often at all, and a sale would 
usually be triggered by the new upward trendline being broken. As always, the 
aim is to limit your losses and let your winners run. That is why your other 
idea of an exit strategy based on "so many percent up within a certain period" 
is not a good one. It would limit your gains, and do nothing to lock in those 
already accrued. 
 I am unsure what you mean when you ask for a "profile of the Dow chart that 
you posted". If you care to elaborate a bit, I would be happy to oblige.  
       Regards,
                 Phaedrus.

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