Revisiting Sell Stops Again

Implementing the trailing sell stop strategy is imperative to your portfolio surviving treacherous times as this century has shown.

Even though it has been discussed before, new readers may bring up old questions, but they are nevertheless important to be reviewed again. Here’s the latest one:

Sorry for a potentially dumb question, but do you know if trailing stops are commonly provided by the big names? I cannot seem to find it with Vanguard, but it seems to be there for Fidelity. Should I do my best with an excel sheet if I do not have the option available at one?

Actually, this is not a dumb question at all. It simply shows that you are seeing the wisdom of using stops and are trying to find a way to apply them with your existing custodians.

As you know, there is no way to place stops for mutual fund holdings. You need to track the highs your funds have made since you have purchased them on a spreadsheet and update the prices daily. That’s what I do.

For ETFs, you can place orders for sell stops with any of the large brokerage houses. However, I do not recommend you do that, because intra-day market activity might stop you out and prices may subsequently rally.

In that respect, I treat mutual funds and ETFs alike. I track the day-ending prices on a spreadsheet and, if a sell stop has been triggered on that basis, only then do I enter the order the next trading day.

For domestic and widely diversified international funds/ETFs, I use 7%; for more volatile sector and country funds/ETFs, I use 10%.

The question in your mind might be when do I exactly pull the trigger? Right at 7%, or at 7.1%, or do I wait until 7.5%? That’s where a little bit of subjectivity comes into play.

Say, a domestic ETF closes off its high by 7.1%. Do I sell the next day? No, I personally like to see a clear piercing of the 7% level. For example, if the markets drop sharply that day and this ETF closes down -8%, I will place my sell order the next day.

If it closes down -7.1% or so, I might wait another day to see if the market rebounds. If it does, I patiently wait. If it does not, and the next day we’re heading towards -8%, I will liquidate. It all depends on your risk tolerance; only you can make that decision.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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