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On Sun, 11 Apr 1999 16:52:54 -0700, Jim Greening wrote:
> Speaking of targets, I'm thinking about changing my system slightly.
>The last several stocks that I've closed when they hit their targets have
>gone on to much higher levels. They have either gone on up by paralleling
>the top of their channel or have broken out of their channel to set new
>steeper channels. I want to take a profit near the target if the stock does
>turn down, but still allow it to run if it continues higher. What I'm
>thinking about is instead of closing the position, I'll just tightening my
>stop to a trailing three day low and stay in the position until the stop is
>hit. If the stock does go on to set a new steeper up trend channel, I'll
>eventually revert to a target and stop based on the new channel. Any
>comments?
Well, you could look at this statistically. You are accepting a lower
price for your stock when it turns around and goes down, in return for
staying in those stocks that stay up. This will only pay off if
enough of them go up after your target to make up for the lower price
on the rest of them.
One thing you could do is go back and look at all your trades for the
last 12 months, and figure out the loss resulting from your new rule,
verses the gain. I'd suggest doing this "blind", where you only show
yourself the data up to the point you hit your target and sold. At
that point, set your stop and look at the next day's data. Step
through each day until you "sell" or hit the stop.
My gut feel is that you're better off selling at your target.
Note that the above also ignores the time value of money. Holding a
stock that is creeping along the top of a channel is not as productive
as buying one that is at the bottom and could take off.
Keep up the good work, Jim. I enjoy reading your thoughts, even when
I disagree. I'm also in HD (actually, I have it in my mother-in-law's
account), but I draw my channels differently. I have HD in a Raff
Regression channel from 2/19/99 to the 4/7/99. As you may recall, I
like to start and stop my Raff channels on days that the stock is in
the middle of the channel, to avoid bias. Also, I like them to be
parallel to the 50-day MA. This channel does that. HD is currently
at the top of that channel at ~68, and could well come down to the
bottom at 61. I haven't drawn a long-term channel, but simply use the
200-day MA.
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