On July 30 of last year, I recommended taking a long position in the market as I considered it oversold on a short-term basis using the CRB Stock Market Momentum Indicator , and was anticipating a bear market rally.

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As it turned out, the market was just in the beginning stages of a massive collapse, and the trade turned out to be a miserable one. A closing signal for this trade finally came after the close on June A graph with entry and exit points for this trade is shown below as well as a table with historical results from this momentum trading strategy.

We now have two consecutive unprofitable signals.

To keep that in context, these signals have come during what has been one of the most vicious bear markets in the last hundred years. I have not lost faith in the usefulness of this momentum indicator as a timing tool, but to avoid blunders of this magnitude in the future, I will be using a stop-loss rule for the trade.

Furthermore, given the current oversold conditions, I think this is a good time to close some long positions or perhaps sell near-the- money call options on existing long positions with expiration anywhere between July and October. Leaving a Miserable Trade and How to Avoid Future Problems Jun.

Time to play defense We now have two consecutive unprofitable signals. Macro View , Market Outlook , CFA charter-holders. Want to share your opinion on this article?

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