A recent dialog on the Market Direction Model
Q: Is your Market Direction Model (MDM) stop-and-reverse, or are there stops? Thinking about subscribing, but want to know if you tell MDM subscribers when to SELL as well as when to buy these leveraged ETFs. Also, do you have stop-loss/trailing stop levels, or is the model in the market at all times, i.e., Stop and Reverse?
A: Yes, we keep all members updated via emails sent out in real-time whenever the model has a change in signal. Thus were the model to switch signals from buy to sell, all members would know immediately, so could take action.
The model has a fail-safe built in to avoid big losses after a change in signal, in case the signal is false. Some members prefer to go all in on each change in signal, while others pyramid in piecemeal as the market continues to trend. Certainly, if the market started to downtrend, trailing stops should be used to protect profits, just as they would be used with stocks. And odds are high the timing model would also switch signals to a sell near the start of a downtrend, but trailing stops would guarantee protection of profits.
Follow up question:
The model does provide ALL the signals a trader would need. In other words, it would never let a position run so far against itself without a failsafe kicking in. However, if, say, it's up big over a number of weeks on a buy signal, it could, in theory, give back all of those gains without any failsafe kicking in. In practice, this has never happened, because as a market starts to trend lower, the model has always signaled a sell, but IN THEORY, this possibility could occur. Capital preservation of principle is the model's overarching premise, but preservation of profits is not. Thus each investor should have their own trailing stops on a winning position, though in practice, this has not been necessary as the model will issue a neutral or sell signal well before profits on the trade vanish.
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