Let me reformulate the question into a statement, which probably has issues, but which is what I am asking about:
#1 Say I buy into a position, which goes up
#2 My model later signals a (weak) sell
#3 I do _not_ sell at this point. Instead i tighten up my stops.
#4 if the position goes down as signaled, I am out quickly as intended
#5 If the signal was wrong, which happens quite often, i continue to ride the upside and I can reevaluate.
EG, Why ever sell outright? Instead just tighten stops and if you guessed wrong you stay in and profit.
I understand now. Think about it this way:
1) If you sell your winning position immediately, you lock in the gain.
2) If you enter a stop loss, you are in effect buying a put option on your position. Regardless of how “cheap” the put option is because you tightened your stop, there is still a cost.
Either way, it will affect your P&L profile. You have to decide what is most appropriate for you.
The reason I ask is that in the momentum modelling I have been doing, it seems significantly easier to find “good/clean” long entry points than it does finding, shall we say, “optimal” exit points, and so far I have been better off tightening stops and letting things run at exit points.
But, maybe that is just the nature of a bull market (and my modelling).
The reason I ask is that in the momentum centric modelling I have been doing, it seems significantly easier to find “good/clean” long entrypoints than it does finding, shall we say, “optimal/accurate” exit points. So far I have been better off tightening stops and letting things run on sell signals.
But maybe that is the nature of bull markets (and my modelling).