Wednesday, August 22, 2012

Homeserve trend exit

The lovely uptrend in UK stock Homeserve came to an abrupt end early this morning, apparently on rumours that the company will be issuing a profit warning.

For a trend follower, there is nothing to do other than let themselves be taken out of an existing position when your stop is hit. Honouring your stops, even when it is a profitable position, is critical to long term success. All trends come to an end. When something like this happens, you simply bank the profits (or absorb the loss, if it a loss making position) and move onto the next trade. As it happens, in this case, the system allowed me to get in near the start of the uptrend, and also allowed me to profit from the majority of the move.

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