Frequently Asked Questions
Q: I have recently subscribed to your MDM service, since I read your book and I am also a long-term follower of IBD.
What I am wondering is if you can indicate what sort of percentage moves in a clear direction are required by the main indices for your MD model to work? I got "whipsawed" lately trying your market calls since the model (understandably) could not handle the short-term fluctuations.
I am fully aware that it is my responsibility if I action any trades based on your market calls, however, it will be helpful to know what would be a sensible approach (and perhaps when it is "safer" to test larger positions) once the market stops trending sideways.
I appreciate your assistance.
A: There is no hard percentage value since it is contextual. Assigning minimum percentage values may mean missing out on the beginning of a good move. As the index rises, buying in late incurs that much additional risk which may mean missing the trade altogether. That said, there is nothing wrong with having patience and letting the major indices clear their choppy band.
Knowing when the market stops chopping sideways can be difficult to see, such as in early August 2011 when the market had a huge sell off after months of trendlessness. Some had thrown in the towel at their frustration with 2011 being fairly trendless up to August 2011 so missed out on the subsequent profits as the market quickly plummeted.
One way to deal with any choppy environment is to buy a smaller than normal position, say 1/3 to 1/2 normal size, on a change in signal then let price prove itself before buying more.