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Greetings, Pro-fundity team members -
02-07-03

At the bottom of the Guidepost, a full listing of this weeks picks are shown, in addition to the Charts via the Pick-link.

As a benefit of membership, you have access to all Guideposts (including Archived GP's) and Picks. If you miss a week or two for whatever reason, you will be able to go into the Historical Guidepost link to catch up with both the weekly guidepost and the 30 picks made for the week.

Greetings, fellow Pro-fundity team members

In our last Guidepost, we considered a “Trailing Loss” exit strategy to sell only if the price falls some percentage below the highest price reached. The sell-stop point won’t go down, protecting profit as price goes up. The stop will increase only if the price exceeds its previous high. In a previous Guidepost a simpler price-exit strategy allowed a fixed 10% return on increasing price patterns. Exiting can be somewhat mechanical as these two examples show. However, a modestly less-simple exit approach espoused by Don Worden (TCNet founder) shows even more promise. Worden’s strategy, called the closest thing to an investors “Holy Grail,” goes like this:

1. The chart below shows graphically what this means. Point: The more profit achieved, the less we should give back. This is critical, “Letting our profits run!” Sounds easy enough, but where do we put the stop point (at what price do we sell) if our profit is, say, 35%?
   
   Fig. 1

2. We’ve taken some liberties with the Worden criteria and filled in the blanks by connecting the three points in the chart with a curved line. The following table is derived from points on this line:
   
   Fig. 2

3. Okay, we’ve got more numbers to consider, but how do we execute the strategy? To help this task, our staff went to work on Table 2 and came up with the following (PTS-3):
   
   Fig. 3

4. This table lets us enter the buy-price, then enter whatever the current price is. The calculations behind the curtain will tell us what the price-profit is, what percentage of that profit we should keep, and most importantly, what sell-price will let us keep that profit as the price drops. Now we can execute the strategy. Let’s try it on one of our picks from 11/08/02 (88 days ago), FHRX.
   
   Fig. 3

5. On this day, the price has increased from its buy on November 8th at $3.40 to today’s (2/5/03) closing price of $8.04. That’s been a great run, but look at the decreasing volume, as the price flirts with its 20-day moving average. The Worden strategy tell us:
   
   Fig. 4

6. We should have a sell-stop at $6.51 to protect two-thirds of our profit. Now, that doesn’t mean we should wait for the price to fall that low. That is a “safety net” to keep us in the game. Considering the volume and price action it may be wise at this point to take all the profit, but that is another story.

7. Exit strategies should be mechanical, requiring no critical decisions on our part. That means we must have a pre-determined strategy, well thought out, that we can execute without stress or heavy thought. The heavy thought goes into premeditated calculation as you come up with an exit strategy you are comfortable with. One size here does not fit all. By hours, days and weeks of paper-trading, you can find your mechanical exit strategy. Getting there is anything but mechanical.

   This Profit/Exit table (PTS-3) can be found by the link on "Advanced Trading Tools" on the home page.

   02-07-03 Pick Selection:

   Main Picks:
   BVN,CHRW,CLC,CSC,CURE,KNSY,LGTO,NEOF,PPCO,SLGN
   Breakouts:
   AAII,ASKJ,BLTI,CEDC,GSOF,MSN,PNP,POSS,SU,USNA
   QuickPicks:
   ANEN,CAL,EPNY,FEIC,KV-A,PDLI,PGE,SDS,SFA,TNE

   Pick Performance:

   We use the S&P 500 as a benchmark, the most common proxy for market action. The average of both pick and S&P 500 performance are compared on each date on the chart (average of 7-day and 14-day performance).

   
   

   

   Average Pick vs. Market (S&P-500) Performance

   The time frame used for the comparison is in line with our swing-trading focus. We generally get in and out of positions during this time. Our picks are chosen with sufficient volatility to suit this purpose.

   For detail and followup on Pro-fundity Tradescape,
   find the link on "Advanced Trading Tools" on the home page.

   

   
   
   
   
   

   
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