Last week’s discussion about sell stops, whip-saws and distributions generated a lot of reader feedback. As I said, most of these issues have been covered before, but they are important and worth repeating so that new readers get the benefit as well.
Reader MD had this to say:
A ‘Sell stop’ is an excellent vehicle to hedge your portfolio of equities. But, what about ‘Mutual funds’? How can we use a strategy like ‘Sell stops’ with mutual funds??
Remember what I said about ETFs? My sell stops are based on “day-ending prices” only, so what happens during the day is immaterial to me. One reader called the intra-day market activity casino mentality, and I have to agree to some extent.
I treat sell stops for mutual funds and ETFs exactly the same. If a sell stop has been triggered for either, based on the day’s closing price, only then I will enter the order to sell the next day.
I never ever enter stops beforehand to avoid getting stopped out during intra-day market swings.
I realize that waiting with your sell order until the next morning might interfere with your work schedule, but the markets are open for many hours. With online trading even being available on your cell phone, you should be able to find a few minutes to place your trades.