No. of Recommendations: 1

In his book on developing trading-systems, Tuschar Chande offers these categorizations based on how fast or slow the entries and exits are done.

Fast Exit Slow Exit
Fast Entry Hot-button trading Early-bird special
Slow Entry Selective trend-following Brute-force trend-following

Of the negatives of each style, he says this. ‘Fast in/fast out’ exacerbates execution costs and is vulnerable to noise. “Fast in/slow out’ is vulnerable to early reversals and late collapses. ‘Slow in/Fast out’ is also not immune to rapid reversals at the start or end of the trend. ‘Slow in/slow out’ requires sustained trends and gives up equity at the end of the trend. ( Beyond Technical Analysis, pp. 6-7, 2nd ed.) In other words, no matter how you get in or how, you’re going to run into problems. So choosing a style depends on your own style, namely, what you’re willing to live with. My preference is to avoid letting prices move very far against me. So I’d favor a ‘fast in/fast out’ system and just pay the commish and put up with the lower, but less volatile batting average of ‘rights’ versus ‘wrongs’ over a slower system (which is a different matter than the sizes of the profits’ versus the losses offered by either, which do favor slower systems.) In other words, “How frequently do you want to get paid, and how big do you want each paycheck to be?”

With a bond fund --or a dividend paying stock-- your paycheck takes two forms: an ordinary-income stream and cap-gains. By how and when you enter and exit a position, you can choose to emphasize one type of profit over the other. E.g., in the following three, as entries/exits are slowed down for BKLN, the ratios shift to favor dividends over cap-gains.

Fast Slower Buy&Hold
CG 62% 50% 13%
Divs 38% 50% 87%
Total 100% 100% 100%

The downside of slowing down a trading-system is that your principal becomes more vulnerable to adverse price moves, which is why bond fund investors are terrorized by the thought of rising interest-rates. The shares they own are will become worth less unless they exit fast. But to accept fast exits means acting on possibly premature or false signals, plus sacrificing the dividends they would have received if they sat tight. And this is where things become almost the difference between ‘toe-may-toe’ and ‘toe-mah-toe’. ‘Fast’ or ‘slow’ aren’t necessarily better than each other, just different (when all things are considered) , though it is fairly easy to show that either can be better than B&H.

Fast Slower Buy&Hold
CGs $2.02 $1.32 $0.31
Divs $1.22 $1.33 $2.11
Total Money $3.24 $2.65 $2.42
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