As some of you know, on Friday I chose to put the Seven Sentinels into a 50/50 G, S allocation as a sell signal looked likely. My intent was to exercise some level of risk management with that decision. I have had positive and negative responses as a result. I'm not surprised by that, but please understand this; some of you are more seasoned traders and some of you are just beginning. Then there's folks somewhere in between. Plus, the system and my blog are used in different ways by different folks. If I leave the system fully exposed when I know risk has risen to the point that a sell signal is highly likely, I am afraid that less knowledgeable folks will take risks that they might not ought to take. Maybe I shouldn't be concerned about that, but I was. So my decision was largely one of protecting those folks and to demonstrate the principle of risk management.
If this market follows through to the downside on Monday and the system produces a sell signal, then the G fund allocation lessens the impact of having to wait yet another day before an IFT can be executed. If a sell isn't produced, the system still has exposure to the market and the G fund allocation can be changed. Anything can happen in that one day delay however.
But taking this approach creates other concerns for those who are interested in using the system in a more pure form. I get that.
Here is what I will do. I will no longer use risk management in changing the allocation of the system until a signal is actually achieved. I will let the individual make that decision as I have in the past. The allocation I made on Friday will not be executed in order to keep the system's numbers pure in spite of the TSP's limitations.
My trading philosophy has been shaped by numerous professional traders. Many of them do not use any one system by itself to make decisions and often they have multiple indicators to judge the trading landscape. In most cases they use some measure of risk management in making their decisions too. But there are other traders who go by nothing else except their system. Neither method is right or wrong, it's a matter of personal preference based on any number of factors. And both can be successful. I am not a purist and prefer to use my system in conjunction with other indicators like sentiment. But as I said, I'll leave the Seven Sentinels signal as it was and let the individual use the system and its signals as they may.
~coolhand
If this market follows through to the downside on Monday and the system produces a sell signal, then the G fund allocation lessens the impact of having to wait yet another day before an IFT can be executed. If a sell isn't produced, the system still has exposure to the market and the G fund allocation can be changed. Anything can happen in that one day delay however.
But taking this approach creates other concerns for those who are interested in using the system in a more pure form. I get that.
Here is what I will do. I will no longer use risk management in changing the allocation of the system until a signal is actually achieved. I will let the individual make that decision as I have in the past. The allocation I made on Friday will not be executed in order to keep the system's numbers pure in spite of the TSP's limitations.
My trading philosophy has been shaped by numerous professional traders. Many of them do not use any one system by itself to make decisions and often they have multiple indicators to judge the trading landscape. In most cases they use some measure of risk management in making their decisions too. But there are other traders who go by nothing else except their system. Neither method is right or wrong, it's a matter of personal preference based on any number of factors. And both can be successful. I am not a purist and prefer to use my system in conjunction with other indicators like sentiment. But as I said, I'll leave the Seven Sentinels signal as it was and let the individual use the system and its signals as they may.
~coolhand
