Ask Colin

Your trading plan says to sell downtrending and non-performing stocks in a bear market. Should I do this now (May 2002)?

Your trading plan says to sell down-trending and non-performing stocks in a bear market. Should I do this now (May 2002)?

Let me explain this element of my trading plan carefully. It refers to the management of market risk. My trading plan says that I should reduce my exposure to the market when the risk is high. Now, often this will happen naturally because I am taken out of positions as they hit stop-loss levels. However, if I decide that I should reduce my exposure, I sell stocks that are not performing (even though they have not hit stop-loss levels) BEFORE I sell winning trades. In other words, I sell the worst trades first and let the winners run. Most people do the opposite, which I think is silly, because it is the reverse of the trader's mantra of cutting losers and letting winners run.

I never hold stocks that are trending down in either bull or bear markets. EVER! My stop-loss level is triggered the moment a stock starts to trend down. I sell it immediately at market. ALWAYS!

I have written in my Trend Trader and Trendlines columns in Shares magazine and Shares Weekly online newsletter that readers should sell down-trending stocks in a bear market. That is only sensible - if your intention is to make a capital gain, then you must be trading stocks trending up. Many readers will not have my discipline or trading rules, so they may be holding these stocks. Hence my advice. It should not be confused with my own trading plan.

I am unable to advise you what to do at present. Please see my policy on the Ask Colin page of my free access web site www.bwts.com.au

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