As a follow-up to a previous Trading Lesson of the Day from the Daily Battle Plan, Bob B. who was kind enough to share his thoughts asking how to best protect ones portfolio in case of a market decline, followed up with another email to me.
Bob pointed out that TPS, which is the primary strategy we use to trade ETFs and is the primary strategy taught in the Swing Trading College of which he graduated this past spring, (for more information, click here) does a very good job of protecting ones portfolio in major market declines. Why? Because the main TPS strategy does not buy an ETF or stock under its 200-day moving average. This one rule alone, avoiding most securities under their 200-day, remains an excellent quantified guideline for traders and certainly did its job again last year. It’s been taught continuously by us since we first published its results more than 5 years ago.
The lesson we learned then and today is that the VXX is an excellent hedge to protect from market declines, as is avoiding securities under their 200-day ma.
Special thank you again to Bob.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.