A review of R and setting a profitable trailing stop; Weaning off external influences

From time to time I have referred to the risk measure R. I also normalize the risk to $1,000, which is 1% of our hypothetical $100,000 portfolio. More exactly it is 1% of the risk budget, but for now let us assume they are one and the same. Therefore when we purchase an ETF, the number of shares are sized to limit our risk, for that security, to $1,000 or R. Generally RSI's trading modules follow a minus one R, stop loss and a plus two R trailing stop initiation level. So, this is what transpires after my broker signals me the +2R level has been breached. I compute the security's current price volatility which is equal to the 2.5 times the 20 day Average True Range (ATR). This is the current value of R, expressed in terms of the stock price. I then send in an order to my broker to sell the fund at a trailing stop of a dollar value which computes to 30% on one R. If you do the math this is 75% of the 20 day ATR. The broker sets a stop under the highest high after this order is entered. As long as the security is not falling, the stop will not be hit. The profits will continue to run as the price goes up.

So let's look at how this worked out for a recent example of iShares MSCI Chile Investable Market Index Fund (ECH).

A few trading days ago my broker emailed me Securities Alert: ECH - Price rises above $63.17. Since the 20-day ATR was  $1.13 this led to a decrement price of  $0.85 ( 75% of $1.13) for the trailing stop. Thus a floor of $0.85 below the highest high is established for selling ECH. I will inform you when the position is sold.

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Well, it has been several day now since my epiphany relative to blocking out external influences. This includes checking up on the markets, viewing my portfolio, having morning coffee and watching the market opening on Bloomberg Financial News, downloading and listening to financial podcasts. I have been weaning myself off all this stuff. It is really tough like quitting cigarettes. Do I miss it? You bet it do, but I'm coming around to the realization that I'm missing nothing and avoiding deviations from my trading plan.

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No new RSI signals today. Catch you later.