When to Exit? 1/29/12

After waiting patiently for a long trade signal, and then entering it at the right time, it is a good feeling to see the stock rise. And as we watch it patiently step up, we feel invincible and good about our trading methodologies. Yes – these trading systems work etc. etc. That has been how it has felt with F and some other stocks and ETFs I am holding. Unfortunately there comes a cataclysmic event like an earnings announcement on Ford (F). There were some issues with commodity prices rising and the future looking a little less bright. The stock responds by dropping 6% pre-market. That easy money is now half gone and I am wondering do I exit or wait for my exit signal. I know my trading system is lagging and is dampened to the individual changes of the stock market day to day. So I wait. The stock opens low and claws its way up in typical contrarian style and ends lower for the day but with only a 4.5% drop. Now what do I do? It’s the weekend and I have more time to think.

I have to follow my stock trading system signals if I am to succeed in the long term. I know that. I also know that I do not want to see all my profits evaporate because I am waiting for an exit signal. Therefore I will opt to sell half my shares at a limit price. Why a limit price? Because after a long weekend, there are probably many others wanting to sell and the market maker for F can drop the price substantially at open and later let the price slowly come up. Of course I may be over thinking this and time will tell. But here is the chart on Ford.

I have had a couple of stocks do the same think to me last week; SNDK and PCP. Fortunately there was the up move by CAT on earnings announcement and my entering GLD and IAU that have climbed nicely during the last week. I am seeing the benefits of having a portfolio spread between regular stocks and other alternate investments like commodities, bond funds, TIP, real estate and currency funds.. As the waves caused by stocks going up subside and start pulling back, I get a fresh wave from the alternate investments. Their wave rides over the pullback. And then there are a few from the stocks that were bigger waves and they continue on. My only regret from the coulda, woulda and shoulda category is not having taken the buy signals on my real estate fund and real estate stock (IYR and SPG) and also my currency funds (FXA, FXC). No excuses. I should have taken them. Now I wait patiently for the next pullback on those.

We have had a strong positive start to this year. I am sensing a pullback is due. That could be a good buying opportunity. Trick is going in as it pulls back. Not fun to do.