r/investing • u/midnightmoose • 1d ago

Trailing stop purchase mechanism?

Can someone tell me if using this trading mechanism makes sense or if I’ve misunderstood something. My thesis is that the market will continue to go down significantly over the next few months to years but will eventually rebound. I don’t think anyone will be able to predict when that lowest point will be reached or the rebound will take place.

I had been stockpiling cash since trumps election predicting some global destabilizing economic event would take place and now have a small lump sum ready to deploy. Because I think the market will go much further but eventually rebound I’ve set orders as a trailing stop purchase for XGRO by 3%, with the understanding that the purchase order won’t activate until the equity rises 3% below its lowest point.

My thought process is that this will decrease the likely hood that I’ll purchase at far “too high” of a price in exchange for the fact that I’ll purchase at least 3% above the lowest point.

Does this make sense? I know the common advise is just to DCA downwards but I feel pretty confident that things are going to get worse before they get better.

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u/j4c11 22h ago

Sell cash secured puts if that's the route you want to go. If the stock drops below strike price , you get to buy it at the strike price minus the premium, so even cheaper. If it doesn't drop below strike price, you keep the premium.

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u/Organic_Morning_5051 22h ago

There's a paper on this by Andrew Lo (I apologize that I do not have it handy) where they found that these orders worked around 15% very effectively. 3% is too little. 12% is a good move. You don't want to necessarily buy a blip and suffer for it so you want a confirmed trend (in either direction).