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Frequently Asked Questions

Dr K Market Direction Model
If you get to full margin quickly, when your model goes to sell do you sell all your positions or do you focus on your seven week rule, the 10 and the 50 day averages?

Q: In your book you mentioned that you tend to get long stocks more than the qqqq's and such when you get a follow through. If you get to full margin quickly, when your model goes to sell do you sell all your positions or do you focus on your seven week rule, the 10 and the 50 day averages?

 

A: When my model goes to sell, I still let my stocks tell me what to do. In practice, most will hit their sell alerts so I find myself back near or completely in cash as the correction takes hold. I sometimes tighten my stops and use solely the 10dma. On the other hand, keeping to the 10dma and 50dma sell rules has also proven profitable as it keeps me in a position longer, and allows me to profit from the ones that are true leaders. The ones that end up not being true leaders are sold using the 50dma with the penalty of having held them longer with only slightly more profit (as the 50dma catches up to the price as the stock stumbles around) or in some cases, less profit (if the stock has a steep correction). On balance, it is debatable whether it best to use the 10dma when the model issues a sell signal, or keep to the 10dma and 50dma as sell rules. It is contextual with the market. The worse the selloff, the better it is to use the 10dma solely. But predicting the severity of a selloff is beyond the scope of the model and of most people's ability to predict with any consistency.


Published: Nov 19 2010