The Average Investor's Blog

A software developer view on the markets

Out of Nasdaq 100 for a loss

Posted by The Average Investor on Aug 23, 2010

Following the 20-week MA, one needed to close the long position in Nasdaq 100 on the open last Monday, August 16th. This position entered on the open of July 26th, was an especially frustrating trade. At first it seemed as if it had caught a new trend, but the sudden and steep market plunge that developed after August 10 turned it upside down.

Quantitatively: this trade delivered 3.7% loss, being up 3.6% before that. Looking at this result one can’t help but to think that a more sophisticated gain protection strategies are useful. However, the commonly advertised line “if you were up X%, you shouldn’t have lost money” is seldom true in real life. Yes, one would have ended up making money on this trade, but might have missed the entire leg up if this was a real trend. Just look at the up move after March 2009 – what gain protection strategy would have kept you in for the whole leg up? There were Jerks of a few percentage points, so any tight stop loss would have seen you out long before the end of the trend.

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