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Two minor down days was enough to kick many people out of their positions. Instead of buying the dip, many traders sold.
Buy high, sell low is still firmly ingrained in most traders mentality. This is how people lose money on the long side in a rising trend. Most will continue this behavior all the way up until they finally decide to hold at the very top of the intermediate cycle. Then they will sell at the bottom of the next ICL.
A much better and simpler strategy is to just go long and hang on when the smart money confidence index is bullish.
The slingshot scenario is still very much in play, even more so in the Nasdaq.
Gary, as always thanks for your continuous guidance here, and the courtesy of providing it for free. The events of the recent week, and the quietness of the weekend made me think of the common misuse of stop losses. And I still don’t have the answer on what is THE way to use them, or if one should use them at all. Based on my eartier trading commitment (not missing the next pullback in stocks to load up in NQ futures) and your guidance on nearing YCL, I bought a decent position on NQ futures on Feb 7, so that was a bit earlier but this time I didn’t use a stop, and endured a 16% unrealized loss on my total account the next couple of days; then the recovery came and 5 days after I was still holding the position, but above breakeven. Yesterday I added slightly to the position before the prices resumed a strong rise until the end of the session, comforted by the fact that the initial position was now largely in the green. I now hope to be able to hold at least until 10k NQ, or when the YCH will appear according to your analysis whatever comes first. My question, after this ride, is whether one should use stop at all in their trading, as manifestly this is how 90% of traders give away their money to the market makers, not to call’m banksters or rescue teams or other manipulators. I mean, except for the guy who buy at the exact high minutes before a real crash (ala 1987 or 2008) the market almost always gives one an opportunity to get rid of a bad position if one is able to calculate cycle correctly (not my case yet) and providing normal cycle is not broken by manipulation. But I still can’t answer this question: tight stop (most certainly not), large stop, or no stop at all.
Stops are easy to place. They always belong below the most recent cycle low.
Tighter stops are just a recipe for whipsawing needlessly out of winning positions.
Ok, makes sense; does that mean that one has to wait until the cycle low is confirmed by a recapture of the 10 MA? Then stop loss makes sense but it means buying not at the low right? For NQ would have meant buying just before the close of Feb 14 around 6670, with a stop loss then around 6160 – 500 points. That’s a lot, especially if prices would retest that low, then jump up for good. Or perhaps buying after a close of the expected cycle low, in that case around 6526 on Feb 12.
This is why I keep telling people the time to buy is when you’re scared, as close to the bottom of cycle lows as possible. Why? Because your stop will be close.
As you can see the problem with waiting for ones emotions to give them the all clear is it puts your stop a long ways away.
Closer stops just run the risk of prematurely stopping one out of a winning trade. The buy high sell low scenario that we watched many people practice this week.
How is it possible to hold NQ futures till 10k, doesn’t futures have expiration date? If 10k comes say in the summer I don’t think u will be able to hold that long in the futures. Or am I wrong? I always thought futures we’re just for short term trading not swing trading due to expiration
One would have to roll them.
Yes, rollover is the way, very easy especially when you are in a winning position; usually the best is to rollover when the contract is still very liquid, like 1 or 2 weeks before expiration. If you forget (assuming your broker doesn’t do it for you automatically) then you just cash the money, as there is no exercise with index options
Maybe Carlvan holds shares, not futures. If you buy futures you should be knowing what you do and not being afraid as he is.
didier, not sure I understand your point; why do you write I am afraid? And about what? Yes, I am trading futures, usually for day trades and sometimes short swing trades; and here I am holding a long position in NQ futures March expiration. The discussion was on stop losses when you want to have a “long ride”. If I am still in around March 10 then should be the time when I would roll over to June contracts
I undestand now, futures. But futures are heavy leverage and i wondered why you asked Gary those basic questions if you play it with that much leverage. Futures are x30 leverage is it not.
Next week should be interesting. In the trading range school camp. We’re at the top of that range of 2750 for the S&P. If we head south next week the model holds water if not I was WRONG. We shall soon find out. Follow seasonal charts and the 2 best seasonal charts this time of year are for oil and semi’s (20 year through 2016):
Bought oil last week as it had it’s big correction.
Thanks for the updates.
Dider, futures are not “heavy leverage”; the leverage comes with the total value of the contracts you hold divided by the value of your account, period. It’s exactly the same as with stocks or options: you can leverage your trade, or not. And my “basic ” question was more a comment on the use of stops when you trade based on cycles. It might be basic for you though; then tell me where you would place your stop when trading an ICL, and how you usually trail it please. And don’t tell me “my stop is just below last pivot and I trail it as it goes” because that indeed would be basic, and it is actually what I do for decades. But I was just questioning whether, depending on your time frame and horizon, classic rules should be followed or not…And I know that stop loss discussions is a topic that goes forever. Consider this: when you test a system on your trading software, you will see that the results are almost always much better when you don’t use stops at all! The question then is how much drawdown you can endure (the more leveraged you are, the less you can trade without stops of course).
Ok, i understand your approach.
I never tried futures.
My stop loss is basically when Gary sells.
In this minicrash i was down 33%. Today my loss is 10%. I upped my leverage midst in the crash, sold x3 and bought options.
I don’t know what the best approach is. I guess without experience investing equals losing money. Gary seems to have a good trading system and is kind enough to share it with us. That’s my stoploss. Experience, proven success and the the fact that someone shares it with me.
Personally i would try to invest my money in an uptrending market, without a stoploss. Accept the volatility in a long term strategy. F.e. buying nugt old turkey and selling a few years from now.
But as of today i’m all in stocks.
Groups scoring the day’s best gains Friday included utilities and tobacco.
Gary, here is my assessment of the SM forecast;
definition of “pie in the sky” phrase
An impossible, unlikely, or fanciful idea or plan. (Hyphenated if used before a noun.)
Just call me dumb money for short……….LOL
I would call you trapped in your bearish bias and unable to acknowledge or accept what is happening.
The definition of perma bear.
I have no dog in the fight Gary so I hope it does pan out for you. I have to stick with my own methodology, its the only way I sleep at night. If this happens I will have to be a spectator on the sidelines…….it wouldn’t be the first time!
Opportunities are missed all the time. I completely missed the bitcoin bubble because I can’t bring myself to invest in Ponzi schemes, but I’ve never missed a night of sleep because of it.
You are free to miss the bull market in stocks if you wish. It won’t be the end of the world, or the last bubble we see.
if Naz pulling DJIA, would it not be better to go long DJIA as it may have more to catch up to?
Some of each.
Its going to need to slingshot if your going to win the bet! he he
If we enter a parabolic buying panic I will easily win the bet as the Nasdaq is only 36% away from 10,000. That’s childs play for a bubble and can be done in less than a month (as we saw with bitcoin during it’s final bubble).
It probably just boils down to how quickly the all time highs are recovered as this is what will trigger the “all clear” response to the retail investor crowd. As we’ve seen when the public becomes convinced there is no downside risk in an asset it triggers a buying panic where really wide spreads are ignored and unsophisticated investors are willing to hit any price just to get “in”.
New Fed chief Powell may back off and give Stock market what it wants…
OR he may stand strong and cut QE even more….
The market is testing his resolve…(pouting/threatening market)
Powell will appear this week before the Congress.
is he going to blink or not?
Gee wilikers Antonyo
Wild bet: This cycle tops around midterm elections.
It wasn’t that long ago when someone predicted Dow at 35 thousand. Now mark Warren Buffet in 2017 – “Dow will hit a million”
It’s called Hyperinflation and while the stock market is soaring so is everything else so in nominal terms you are no better off.