I go a little bit further into the problem of handling a "trader" position (which I call a "medium term" trade, as opposed to the investor's "long term" trade). While the investor's strategy appears quite clear to me, I have more difficulties about the former.
Recently reading again Stan Weinstein's pages 184-205, I understood that my first reading was unprecise. For a long time, I "interpreted" the Weinstein's strategy in my own way: I considered that the easier way to deal with a trader's trade, was to follow a shorter SMA in the same way we do it for the investor strategy. The SMA that I considered had to be followed was the SMA50daily. In some cases (trends with less potential), I decided to alternatively use the SMA20daily.
Now, both experience and observation of a few stocks proved that it was a bad strategy, resulting from a superficial reading of Weinstein. So, reading the book again, it appears now clear to me, that in "trader"'s trades, we shouldn't follow any SMA at all, but only take for reference "little" pullbacks (little as in = littler than the big pullbacks of the investor strategy). The stops have to be put right under these pullbacks. That clarification should strenghten my trades.
But.
Still, it looks quite hard to decide in which cases we move the stop or not. According to Stan, we should only consider corrections of at least 7%. Now, in some cases this works well, but in a lot of other cases, this doesn't work as intended. The problem comes, for example, when a stock does a first big move, in which it does a lot of little corrections (4%, 5%... always less than 7%). After this first big move, a big correction happens, but this corrections goes really low, eventually until the SMA30w. Finally, we're stuck in an investor trade, while the primary intention was to make a medium term trade.
Here a test case: Cap Gemini, a French tech company, which made a bull trend extending from 2012 to 2015.
Here the weekly graph of the 2012-2015 bull trend.
And here the daily graph of the initial move, in which it was possible to enter a medium term (trader's) trade:
Here, the trade would have been winning only if the stoplosses were moved to the points A (initial stoploss), B, C, D. Eventually, using a trendline can help to make better profits here. But in this case, all the corrections are littler than those considered by Weinstein. They all make about 3-5%. Never 7%. I know that we shouldn't stick to much to such numbers, but still. If I had used the strategy as described, I'd be facing a big correction move, and be stuck with the stock for a far longer time than intended.
Now, facing to this kind of problem, here is the strategy that I decided to use.
1/ Basically, I only move my stoplosses when I see a correction of at least 7% (or there about).
2/ If I see that a nice first move with littler corrections takes place, and that this corrections can be exploited to move the stoplosses in a decent winning position, I do it.
3/ If I don't, and finally it appears that the stock does a big correction (the investor type: a big move coming near to the SMA30w), I stay on the stock, and will go back again in a trader strategy when the stock starts the next big move.
So now my question: how do you deal with that kind of problem ? Do you have other ways to follow a medium term trend ? Do you use some SMA to handle the situation ?
I know that this is a such large question that it is hard to be handled in this topic. Maybee would it, actually, deserve a topic in itself.
