Exit Strategies for Swing Traders Workshop on June 12 at 8am PST

traders expo los angeles 2010

Exit Strategies for Swing Traders on 6/12/2010, 8:00 AM – 9:00 AM PST 
This workshop examines key sell strategies for swing traders, including stop losses, profit targets, and more.  The material is drawn from the back test results published in the Exit Strategies reports.   The real bonus for attending live is analysis of your favorite markets.   Please bring the tickers of any stocks you are swing trading and we will evaluate different exits for them using end-of-day data in the session.    The Traders Expo is held at the Pasadena Convention Center, near Los Angeles California.

Click here for complimentary registration to attend in person.

For free live webcast of the Exit Strategies workshop, click here.

On Knowing When To Sell

SPY Sell and Hold Signals

I want to share a couple key ideas with you.  I just answered all the write-in survey questions from the recent MoneyShow and if there was one theme, it was “how to know when to sell?”

The truth is that there is no one-size-fits all answer to that question because it depends on your goals and outlook. 

This particular moment in the market illustrates that really well.  (See chart above)  Short-term strategies such as price crossing the 20-day moving average and even intermediate-term strategies such as MACD Divergence have long since given a “sell” signal. The aggressive traders among us – myself included — have sold short and are now watchful of an opportunity to cover.

 I also follow a longer-term long-only strategy for my retirement funds.  The SPY below its 200-day MA tells me not to buy.  But is it a sell signal?  No, according to the 50/200 MA pair because the 50 MA has not crossed down through the 200 MA to give the Death Cross signal.    

 How will it play out this time?  I don’t know.  What I do know is how the strategies mentioned above have performed over the last fourteen years.  That data helped me to make the decisions about which signals to follow and with what capital.

 This brings me to the other frequently-asked question at the show:  “What is BackTesting Report?”

 BackTesting Report started as a series of e-books about the historical performance of various technical indicators and trading strategies.  I began the work because I wanted to know – for my own trading – what I might get out of these strategies, and which I might use for buy/sell decisions.

 BackTesting Report has expanded beyond the reports to videos but the concept is still the same:  to provide the data  to understand the trade-offs between the various technical strategies and pick the best strategy.

What about you?  How do you know when to sell?

Negative Divergences Abound

Since its not always easier keeping up with the market over a long holiday weekend, I thought to share my weekly “homework”.

Plenty of interesting red flags from my MACD Divergence Detector running on StockFinder®.   It found MACD and MACDH negative divergences on SPY, DIA, ISRG, BIDU to name a few.    Looking at the chart of SPY below, its clearly not the first negative divergence.

MACD Lines and Histogram do not confirm price action on SPY
MACD Lines and Histogram do not confirm price action on SPY (click to enlarge)

The other SPY negative divergences kicked off a slight decline, followed by a rally.   What’s to say that won’t be the case again?

First off, consider that the markets may very well rebound again.  It is, after all, a seasonally strong time of year.  I don’t want to make recommendations or predictions here, just share some observations.  See Truth About MACD BackTesting Reports  for data on the historical back test performance of MACD divergences.

The next observation to share is that breadth and New Highs / New Lows (NH-NL) exhibit extraordinary negative divergences of their own.   Here’s a chart with McClellan’s Summation Index to show what I mean.   (Note that I didn’t personally run a back test of McClellan’s Summation Index.   Tom McClellan told me he did.  I wish the strategies of other people who have told me that had performed better in my back tests.  Anyway, until I get around to doing the back test myself, I am taking McClellan’s word that the summation index that bears his name is a useful indicator to have in the toolbox.)

Red arrows highlight divergence between SPY (green) and McClellan Summation Index (yellow)
Red arrows highlight divergence between SPY (green) and McClellan Summation Index (yellow)

With these kind of negative divergences showing I am certainly not thinking of buying the dip!   In fact,  negative divergences are a signal to sell long positions in my book.    

If you are also standing near the door (so to speak), or working on your own stratgy for cutting losses and taking profits, you may want to take a look at the Exit Strategies series of BackTesting Reports.   They show back test results for various kinds of fixed stop losses, trailing stops losses, and profit targets.    That stuff isn’t as glamorous as buy signals but if you didn’t make a solid plan for when to sell before you bought, the next best time to think about these things is while the market is up.