A lot of chat yesterday in Stockopedia on the “market cycle” and some putting forward the view that the market is overstretched and due a pull back.
In my view trying to time the top of the market, and indeed the bottom, is extremely difficult and the energy expended would be better spent on researching underlying stocks. My approach is not to try and hit the top of the market cycle chart shown in yesterday’s posting by Paul but to sell individual stocks in my portfolio when they have rolled over. This way I am kept in a stock much longer and am helped to resist selling too early just because it has gone up. (There may be a case for top slicing if the holding has become too big a proportion of the portfolio.)
I use “Donchian channels” as my guide, where the bottom of the channel is the 21 day closing low. I use 21 trading days as that is roughly a trading month. So, if a stock closes below the 21 day low, it is a serious warning that the trend may have changed, which more often than not leads to me selling or at the very least reducing my holding. If the market as a whole is rolling over then I am stricter in my implementation of the rule and am happy to let the cash build up in the portfolio.
Ultimately what I am trying to avoid is jumping off a rising trend too early but having a trigger to alert me to when it looks like the trend has changed!
A few examples below; WH Smith, International Biotechnology Trust and St.Ives are three of my holdings where the trend is clearly upwards and the 21 day low is clearly "stepping up". Why would I sell now?
