Friday, June 22, 2012

Repost - See what your existing positions are telling you

Below is a repost of what I wrote on 01 December 2010, which is just as valid today - the only difference is that currently shorts are continuing to be profitable while the market gave a long signal last week, whereas when I wrote the original post I was holding long positions when a short signal was given in the general market. Again, a real life example of why you should never cut short profitable trades until you get an exit signal. Let the trend play out:

"I have been asked as to why I haven't gone in all short following the volatility in the general indices, and a 20 day low being made on the FTSE last week.

You have to pay attention to what your existing holdings are telling you. In my case, the long positions in my portfolio have held up pretty well, and ironically the one stock I was stopped out of last week was a short position!

As a trend follower, I never want to manually close an existing position, and override my stop methodology. I created the rule for stop placement for a reason - to keep me in the trend, and to prevent me from making a hasty decision to exit my positions. I therefore kept my long positions open, and will continue to do so as long as the stops are not hit.

In addition, I also had to respect my overall portfolio risk parameters, which prevented me from opening new positions (either short or long)."

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