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.
Comments 7
Thank you Ulli. I have followed your blog and newsletter on and off for years but the recent crisis and re-reading of your materials has finally pushed me to follow your methods. I have created a spreadsheet for our mutual funds and ETFs that updates the at the end of each day (when I open it). To the left of the updated price is a column for previous high. If the day end price is higher, I manually update it. To the right is a column that automatically calculates my stop-sell price (based on the high) so I can easily see when the current price is at a sell point. For now I am only tracking prices for the previous six months because many of my holdings would be automatic sells given how much they free-fell previously. I will ride this buy-cycle until my sells are activated. After I start selling I plan to use the data you kindly provide to re-enter the market during the next buy cycle. I feel empowered to have finally taken your advice to create and follow a plan with easily trackable data and an "exit strategy". Thank you!
Thanks Ulli. I always appreciate your blog entries that reemphasize the basics of your strategy.
Paul
For those who need a little help with setting and following a stop loss, smartstops.net is helpful for ETFs. It could help with those subjective times.
yes sell stops work to get out of the market with minimal damage but Ulli what type of rule do you follow to get back in after the market turns around.Thanks in advance. Wade
bayareakirk wrote that he uses a spreadsheet to track sell stops for his ETFs, and that his spreadsheet is set up to update current prices when he opens it. I wonder if bayareakirk would share his method of getting his spreadsheet to update prices? I have used spreadsheets since before 1-2-3, and I was not aware that they could do this.
Thanks for the response Ulli. I had started a spreadsheet while waiting for your response, and it was actually easier to use than I expected.
To the last anonymous: I think the first person only meant he or she had some equation like =ROUND((B5*0.93),2) going on, rather than a literal instant web update from opening, but I could be wrong.
Using Google docs for your spreadsheet you can indeed have prices that update in real time. There are financial templates available from Google that show how to enter the calculation for live updating. It looks like: =GoogleFinance(A2,F4). I don't know if that works in Excel.