A few questions regarding your tactics for reentering the market with “stopped out” money:
1. Typically, what kicks off your decision to start reentering the market?
2. Do you only enter into funds that have a 0.0 %DD?
3. Assuming the trend remains positive, do you give yourself a target deadline for reinvesting all of your “stopped out” money?
For one, a resumption of upward momentum will always make me realize that I have been whip-sawed and cause me to re-deploy the proceeds such as happened early this week.
Second, depending on your risk aversion, you could wait until the funds/ETFs, you’ve been stopped out of, take out their old highs before re-entering. Or, you could select different funds/ETFs along the lines as I profiled back in July in “Using The Benefit Of Hindsight.”
Third, I don’t give myself a deadline for re-investing stopped out money but, if I see a rally building early in the morning, such as we had last Monday, I try to get back in as quickly as I can.
Keep in mind that trying to find a new entry point is not an exact science. You never know for sure if you’re making the right move at the right time. The idea is to get back onboard quickly if the trend goes your way. This also means that you need to quickly accept the fact that the stop point may have turned into a whip-saw by not dwelling on it.
That’s the moment in time to look at the big picture and remember that you are using stop losses for a reason, which is to limit downside risk.