Yesterday I posted Al’s stop loss study along with my response. I asked Al for a second study. Here it is:
I did what you said: I re-examined the effect of changing the sensitivity of the major indicators from daily to weekly, then compared the results of trailing stops vs. buy-and-hold vs. your method of getting out on 2 reds/sideways movement.
It looks like you may have something here. In almost all cases, the 2-reds-and-out scenario came close to or beat (most of) the other scenarios (see attached snapshot).
Looks like, as you say, this may be a good compromise for certain investors. Note that in the attached study, I changed the MACD, MA and Stochastics indicators to 1-week PERIODS, so that the moving average, for example, was for 10 WEEKS, not 10 days, etc.
I don’t know if this is what you were suggesting in your note, but it turned out better (e.g. gave better results) than leaving the MAs at 10- and 30- days (hope that made sense).
By the way, if I were in the market in 2000, where even most good companies were severely overpriced, I’d watch the market like a hawk, and get the hell out of Dodge at the first sign of a selloff. I hope the lunacy of the market in 2000 never shows up again, or if it does, I’ll set the indictors to 10-MINUTE periods.
Anyway, by de-tuning the indicators, it appears we get a good compromise between the safety of your not wanting to lose money, and the buy-and-hold maximum return. Now I just have to study this some more against stocks that are more volatile than this group.
I’ll keep you posted, if you’re interested.
Again, thanks for your help. I sincerely appreciate your time, knowing how busy you are.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.