When to sell your boat
Most boats are for sale, just have a look in any marina. Most of the boats have a discrete 'for sale ' sign attached to them. They say that the best days of owning a boat are the day you buy it and the day that you sell it!
(photo via pinterest)
In the same way, one of the most exciting days of a trade is the day that it is opened. The challenge is knowing when to sell again, and close the trade. The first thing that I would say, is that I find it much easier to do this if I have a plan, particularly a written plan.
You may have gathered that one of the signals that I use to open a trade is if its weekly price closes above the average price for the past year. In other words, the price that people are willing to pay is significantly higher than over the past year. ie there has been a change in sentiment from bearish to bullish. It's not rocket science.
If an item rises steadily, it's not a bad idea, in my opinion to use the opposite signal to close the trade. ie if the weekly price closes below the average price for the year, exit the trade, because sentiment has changed and the price is dropping. This graph, for instance, shows that anyone who had bought Apple using this technique in June 2009 would have had a clear exit signal in November 2012. They could then have got in again in October 2013, and exited the trade in August 2015. Both trades would have made a nice profit. Do I own Apple shares now? No, of course not!
Problems occur however, when a trade accelerates upwards exponentially. When this happens, it's a great feeling, but it tends to be overshadowed by the knowledge that it will come down to earth with a bump. This happened with the price of sugar in 2009 and again in 2010. On both occasions, the price of sugar sky-rocketed, but then came down to earth with a bump and lost most of the profits, if one was using the technique that I described earlier.
So what is one to do? If I see that the price is going crazily upwards, I consider using a shorter moving average for my exit signal. In the graph below I have inserted a six-month moving average (in red). One can see that using this exit technique would have given much more profit than using the one-year moving average.
Another option would be to use a 'trailing stop-loss', that one would move upwards each week, in order to allow for the price to rise, but would protect against a rapid reduction in the price. One could place this just below the six-month moving average, perhaps.
So there we go: it's easier to trade using a single moving average, I think, and I do like to see things moving steadily in one direction (like the Apple trades), but I find it helpful to have a strategy that I can use when the price accelerates crazily. Hopefully this means that when the time comes to exit the trade, I can do so and retain a reasonable profit. I don't know if anyone ever sells a boat for a profit, which is where my analogy is starting to break down. But what good is an analogy if it doesn't need explaining?
By the way, I am not a financial advisor. All I talk about is my trading, I cannot give anyone advice. I have a number of trading techniques: a daily trading technique, a weekly trading technique, a six-month technique and a once per year technique. Members of my website have access to all of my trading as I do it, via a private Facebook page. Membership of the website is just a modest fee. It might give you some trading ideas?....
(photo via pinterest)
In the same way, one of the most exciting days of a trade is the day that it is opened. The challenge is knowing when to sell again, and close the trade. The first thing that I would say, is that I find it much easier to do this if I have a plan, particularly a written plan.
You may have gathered that one of the signals that I use to open a trade is if its weekly price closes above the average price for the past year. In other words, the price that people are willing to pay is significantly higher than over the past year. ie there has been a change in sentiment from bearish to bullish. It's not rocket science.
If an item rises steadily, it's not a bad idea, in my opinion to use the opposite signal to close the trade. ie if the weekly price closes below the average price for the year, exit the trade, because sentiment has changed and the price is dropping. This graph, for instance, shows that anyone who had bought Apple using this technique in June 2009 would have had a clear exit signal in November 2012. They could then have got in again in October 2013, and exited the trade in August 2015. Both trades would have made a nice profit. Do I own Apple shares now? No, of course not!
Problems occur however, when a trade accelerates upwards exponentially. When this happens, it's a great feeling, but it tends to be overshadowed by the knowledge that it will come down to earth with a bump. This happened with the price of sugar in 2009 and again in 2010. On both occasions, the price of sugar sky-rocketed, but then came down to earth with a bump and lost most of the profits, if one was using the technique that I described earlier.
So what is one to do? If I see that the price is going crazily upwards, I consider using a shorter moving average for my exit signal. In the graph below I have inserted a six-month moving average (in red). One can see that using this exit technique would have given much more profit than using the one-year moving average.
Another option would be to use a 'trailing stop-loss', that one would move upwards each week, in order to allow for the price to rise, but would protect against a rapid reduction in the price. One could place this just below the six-month moving average, perhaps.
So there we go: it's easier to trade using a single moving average, I think, and I do like to see things moving steadily in one direction (like the Apple trades), but I find it helpful to have a strategy that I can use when the price accelerates crazily. Hopefully this means that when the time comes to exit the trade, I can do so and retain a reasonable profit. I don't know if anyone ever sells a boat for a profit, which is where my analogy is starting to break down. But what good is an analogy if it doesn't need explaining?
By the way, I am not a financial advisor. All I talk about is my trading, I cannot give anyone advice. I have a number of trading techniques: a daily trading technique, a weekly trading technique, a six-month technique and a once per year technique. Members of my website have access to all of my trading as I do it, via a private Facebook page. Membership of the website is just a modest fee. It might give you some trading ideas?....
Comments
Post a Comment