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Showing posts from May, 2014

Nicolas Darvas on stops: "no loss-free Nirvana"

I was just rereading Nicolas Darvas' How I Made $2,000,000 in the Stock Market and came across this interestingsummary of his trading method and risk management approach in the author's intro. I'd like to share it with you.

Quoth Darvas: 

"I built a fortune with serenity by avoiding premature selling yet making an exodus from most of my stocks with the use of a single tool: the trailing stop-loss. 

I have discovered no loss-free Nirvana. But I have been able to limit my losses to less than 10 percent wherever possible. My stop loss method had two effects. It got me out of the wrong stock and into the right one."
Full passage in the image below:



Sounds a bit like William O'Neil's philosophy on taking losses, doesn't it? Well, as O'Neil points out, his trading style and risk management philosophy was influenced by (among others) Nicolas Darvas and famed speculator and author, Gerald Loeb. Loeb advised speculators to cut all losses at 10% and he aimed to …

Sell in May and go away?

Sell in May and go away? Let's take a quick look at the figures behind this well-known market adage. Charting the market's seasonal returns below.

Here's a look at the S&P 500 and its seasonal returns, November - April vs. May - October,  from 1950 to 2014. This chart comes to us via Chartoftheday.com



As you can see, the bulk of the market's gains since 1950 came during the "good period" of November through April. The seasonal period covered in the "sell in May" mantra is not nearly as strong. Returns in this summer period have been subpar, as Chart of the Day points out. 

Here's a look at the seasonal period in the SPY (S&P 500 ETF) from the financial crisis of 2008 to today. 



Since 2008, we find an even mix of upward moves and market corrections in this May - October period. The initial "sell in May" period shown here coincides with the selling panic of 2008. The bull market of 2009 - 2014 has been far more supportive of the s…