Here’s one comment that I feel needs clarification:
Something that you definitely are missing when talking about trailing stops is the Market trend.
If the Market indicators are Bullish, one really should think twice about selling an ETF/Mutual fund on a 7 percent down turn. Had I not used common sense and not sold my ETFs/Mutual funds on a 7 percent down turn, I would have missed out on the 50 percent bull Market run over the last 7 months. I believe you have also advocated using common sense/intuition before selling mutual funds/ETFs.
The reason to use trend tracking along with trailing sell stops in the first place is to have a clear cut plan in place in order to avoid emotional decision making and to control downside risk.
If what you are describing works for you, fine, but it may not work for others. Introducing another subjective variable, such as the identification of the market trend (however you want to define it), causes additional decision making and confusion.
To be clear, when a trend for an ETF/Mutual fund ends, reverses and triggers my trailing sell stop, we get out. At that moment, however, we have a plan in place as to what will have to happen in the market in order for us to re-enter. If you don’t have such a plan, yes, then you will miss out on the potential upside.
2008 was a perfect example in that by most measures the market was still in an uptrend when we moved to the sidelines on 6/23/08. My preference is to act immediately when the signal gets triggered and ask questions later.
As I have often commented, being disciplined and exact with the execution will lead to whip-saws from time to time. That’s the price we simply pay to be sure we avoid the big drops in the market whenever they happen.
Since you apparently use a sell stop along with an analysis of the market trend, I’d be curious to know when you got out last year and when you re-entered this year.
My philosophy over the past 20 years has been to keep things consistent, effective and simple without any attempt of curve fitting my approach to current market conditions.