Reader Q+A: More Sell Stop Clarifications

Some readers were still having trouble about the proper implementation of the sell stop discipline during the recent market pullback:

In my government thrift fund, I can chose from S&P; 500, small cap, international, bond and treasuries. The international fund dropped to just over 7% of its 1/14 high today but your international fund trend line is still in positive territory.

This is where I get frozen in a decision. It has broken the 7% line but it really is not a mutual fund but a broad index which should be closer to your international trend tracker. Shall I wait for you to ignite a sell on the international tracker or trade based on the 7% rule?

Here’s another one:

Has there been a sell stop triggered for international mutual funds? I see in your Friday blog that the international index trend line is still +2.97%. Would appreciate the clarification. Thanks!

Execution of the trailing sell stop takes precedent in the event that either of the Trend Tracking Indexes (TTIs) are still positioned above their long term trend lines.

The TTIs are slow moving indicators. Depending on when a market pullback occurs, waiting all the way for the trend line to be broken to the downside can wipe out your profits or increase your losses to an unacceptable level.

In the case of the international TTI, whether you’re using indexes or mutual funds, the sell stop has priority. If you got stopped out, and now are watching the market resume its upward trend, you have experienced a whip-saw as discussed in the past and need to look for a new entry point.

About Ulli Niemann

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