The Best Laid Plans

I mentioned in last Friday’s update that a couple of our holdings triggered their sell stop points and were scheduled to be sold yesterday. As I have talked about numerous times, I do look at market activity first; just to be sure a rebound is not in the making before pulling the trigger.

As it turned out, a rebound was indeed in the making, and I held off liquidating my positions. One retreated back above its sell point while the other one still hovers slightly below it.

I pointed out in Subjective Reasoning, once sell stops are executed, the danger of a whipsaw exists and it pays to watch market activity the following day before entering the sell order. If the markets head higher from here, we’ll be glad we stayed in; if it drops off again, we will have another opportunity to get out. This is one more reason why I use end-of-day pricing only when establishing my exit strategy.

If you set up your sell order on an intra-day basis, which some readers seem to prefer, you will not have the flexibility to sidestep a potential whipsaw. While we accept whipsaws as a necessary evil to avoid going down during adverse market moves, avoiding one will alleviate having to hunt for a new entry point should the markets head further north.

About Ulli Niemann

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