Frequently Asked Questions
Market Lab Report
You say that I should use stop loss orders with the pocket pivots. Is this also valid for the ETFs?
One should always know their exit point in any trade. One can elect to use stop loss orders with ETFs since one should not violate their maximum risk tolerance levels. For many investors, this level is 8%. Alternatively, one can simply use the market direction model's signals as their guide to buy and sell, as it has a fail-safe that kicks in to minimize losses to typically less than 2% on the NASDAQ Composite (or 6% on a 3-times ETF) on false signals. That said, if one buys a 3-times ETF, know that the loss, in more volatile and unusual markets, may exceed 8%. Alternatively, to mitigate a loss on a false signal, you could buy a smaller position in a 2-times or 3-times ETF or a normal size position in a 1-times ETF.
Published: May 14 2011