Something interesting about receiving signals during a choppy environment is that your emotional response wants to wait "to see" if the move is really valid, even though the System suggests getting aggressively long. I always like it when my system signals entries when my and other's feelings suggest remaining cautious and indecisive. Your backtest didn't dwell on whether it is a choppy, uncertain market. It takes all signals and disregards any emotions at the time.
The emotional aspect of investing is always interesting, especially when a successful system signals moves that your brain doesn't want to take. Our brains however have proven to be inferior when making financial decisions, especially financial decisions involving unknown risk. It is for this reason that I try to always follow the system, and not my emotions.
The emotional aspect of investing is always interesting, especially when a successful system signals moves that your brain doesn't want to take. Our brains however have proven to be inferior when making financial decisions, especially financial decisions involving unknown risk. It is for this reason that I try to always follow the system, and not my emotions.
If you need a fundamental reason to buy, look no further than the ECB's massive stimulus program It unleashed on Thursday. The European Central Bank will purchase 1.3 trillion Euros worth of European government bonds over the next 2 years and that should prop up global markets.
Another important takeaway with a trend trading approach is that the entry signal is the least important aspect of the trade. Its far more important to size your position according to your predetermined risk tolerance, and most importantly placing effective stops that not only protect against outsized losses but also keep you in a trade long enough to ride the trend to completion.
Actually taking the "initial signal" is the most inconsequential aspect to successful investing. So regardless of whether its a clear buy signal or a muddled one, the most important thing is to have a robust EXIT strategy that manages risk and keeps you properly positioned.
Now that we know our system likes the market here, lets take a look at the notable moves in our Portfolio this week:
Another important takeaway with a trend trading approach is that the entry signal is the least important aspect of the trade. Its far more important to size your position according to your predetermined risk tolerance, and most importantly placing effective stops that not only protect against outsized losses but also keep you in a trade long enough to ride the trend to completion.
Actually taking the "initial signal" is the most inconsequential aspect to successful investing. So regardless of whether its a clear buy signal or a muddled one, the most important thing is to have a robust EXIT strategy that manages risk and keeps you properly positioned.
Now that we know our system likes the market here, lets take a look at the notable moves in our Portfolio this week:
Exiting UPS
UPS opened Friday with the dreaded "pre-announcement", stating they anticipate a more challenging future environment than was originally expected. Maybe they do, maybe they don't. All I need to know is that price decisively broke my stop level and moved back into the prior range. This rejection from highs created a failed breakout and with so many other winning stocks setting up, we can look elsewhere.
Do note that I don't consider this one dead just yet. Similar to prior breakout-shakeouts in this bull market, this may stabilize and retrigger at some point in the near future. It is certainly one to keep on the watchlist, but as for risk management we will cut our losses quickly as this has taken a sudden and unexpected turn for the worst.
Entering Boeing (BA)
While price just poked above the prior weekly swing high at 134.36, the Relative Strength is showing a clear breakout and outperformance during the recent turbulent conditions. The MACD has also found support at the zero line and is headed back higher.
A clean break of the $120 range lows would act to invalidate our trend resumption rationale and would cause me to exit the position.
To gain a little more perspective on the longer term, lets look at the Monthly chart too:
Since the torrid run BA made in 2013, the stock spent all of 2014 digesting that surge. The recent correction has been orderly and tight. This also has allowed the 20 MMA to catch-up and price has bounced right off that trailing support.
I feel the risk/reward is very much tipped in the favor of the bulls here and with the weekly breakout signal, it appears now is the time to get involved.
SBUX
SBUX blasted off to new highs this week after reporting record profits for Q4. It appears this is ready to run again and a move similar to what occurred in 2013 is not out of the question. We will keep our stop below the breakout consolidation and let this baby work.
HON
HON had a very nice breakout to all-time highs this week on a strong Q4 earnings report. Nobody was talking about this today, but I always think its worth noting when a stock is up 3% on a down day for the market. Continue to ride this winner.
UNH
UNH continues to shine and despite the great run it has had over the past year +, the stock rallied 10% this week on a strong earnings report. With the new breakout it is time to slide our stops up to the 95.75 level. I would expect some consolidation and profit taking soon, but there is not much in the price action to support such an opinion. Right now we just need to stay out of the way and let it build some kind of support base.
As usual we continue to run winning positions and cut losing ones. We will take new signals as they trigger and manage risk as our top priority. Good luck with your positions next week!
If you want to track our holdings during market hours be sure to follow me on Stocktwits @RelativePerformer. I will be posting updates and charts on any notable activity throughout the trading week.
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