"Stop" rules vs. market timing?

[JAC]

I'm a newbie, but not much discussion of stop rules amidst all this market timing? For example, since inception (june 2003), the downside daily maxima for the CSI funds are - 0.26, -0.35, and -0.61, respectively. Those are the maximum historical daily drops, which, since it takes 24 hours to get back into the G fund from any market timing adventure, represent the worst that has happened in any one day. Once any strategy exceeded those, one stop rule says switch to the G Fund if the price drops to that much above your purchase price. If you started at 10 in I, went to 11.5, at worst you'd transfer to G at => 10.61? These are different than "buy" signals because they are specific to your account, when you bought, and for how much.
Jonathan

 

[ayla]

sorry to be dense but I'm not understanding the arithmetic here when you say:

"If you started at 10 in I, went to 11.5, at worst you'd transfer to G at => 10.61"

Question, don't you mean "worst you'd transfer to G at 10.89"?

Can we use a different example? What if you start at 10 in I and went to 11.61, then at worst you'd transfer to G at 11.00? right?

So are you saying as soon as you have reached these daily maxima profits for CSI of -.26, -0.35 and -.61 , you should "leave the casino" and go to G?

I appreciate your comments about the "stop rules". The little I know about this stuff, knowing when to sell seems a lot harder than knowing when to buy. But if following your guildelines using the daily maxima drops, I must ask whether you think there might be any guidelines (or logic) using daily maxima high points (or drops) to determine when one might buy back in?

 

[Spaf]

Stops vs Timing

Stops
The most important concept of protecting your funds is realizing the fact that a decline is in progress, or a mistake was made, and then moving on. Don't let a small loss turn into a large one. Set a target price (a stop) for selling if a loss starts. Always limit your losses.
A loss of 5%, requires a gain of 5.2%.
A loss of 10% requires a gain of 11.1%.
And a minus 25% requires a whoping 33.3% gain.
Generally 2-3% loss is the maximum for a total principal.
5% for any one fund.
However the type of funds and the big picture have to be considered.
Non sector index funds are generally safer.
Stops are generally set as trailing. A % below the current price.
With TSP we have a delay to enter and exit positions; normally one to two days.
I like using two stops, one as alert the other as the actual trailing stop. Normally, I use 1% and 2% respectively. These are paper stops, with TSP funds.
Stops should not be used as a sole indicator. Indicators of momentum, strength and trends should also be used. These items are just half of the issue. The other half is following the economy or general market fundamentals. For example, currently there are worries that the Cartel (FOMC) will raise rates too high and choke off the current Bull market. At times there are emotional factors that figure in to the daily market yak, where as the actual conditions may be entirely different.

Timing
Market timing is a different issue. Finding the tops and bottoms is nearly imposible. However, knowing when stocks are overbought, and oversold, is fairly easy; using select indicators. The principal of buying low and selling high can be followed, so long as you try and not get greedy. Most traders develop a strategy (a system) and they tweak their system as time moves on.

RE: http://www.incrediblecharts.com/site_map.htm

Rgds, and be careful!..................... .......................Spaf

 

[JAC]

Spaf says his stops are 1% as an alert, and 2% (below starting position) is time to sell. Percents are indeed the way to think about it, so the figures for C, S, and I are -0.94%, -0.95%, and -3.02%. Only the latter is greater than 2%, and it's only happened once since June 2003 (just last May 17th, in fact).

I was musing about timing in general, of which the most extreme form in this context would be jumping in and out of C, S, or I funds (ignoring the F...) from the G on a daily basis. (Query? When does it take two days to make a transfer?). That makes you wonder, if you have some gains, what's the worst thing that can happen before you can fix it. Historically, those are the above worst observed drops in those funds.

On the whole 5% in any one fund does sound like a good rule of thumb. Thanks for the link! Could you provide a brief explanation of overbought, oversold, and some example indicators?
Jonathan

 

[Spaf]

Jac,

Go to www.stockcharts.com See gallery view for whatever fund you want. Try [$SPX] S&P 500. RSI (relative strength index) will indicate where in the field prices are in relation to overbought [70] to oversold [30]. Also see the MACD and Slow-Stochastic for similiar indications. For more advanced indicators see the NYSE McClellan Oscillator.

However getting back to basics; If sellers want products they have got to transport them, to the store, and then sell them. So [$TRANS] becomes somewhat of an economic barometer. RE: The Dow Theory.

Rgds..................... .....................Spaf