Say I'm a long-only trend follower who stops out whenever something loses 7% from the previous high. That preserves my capital, or does it? If I jump back in on a new trend but it turns out to be a bear trap, I lose another 7%. If a bear market has started this could repeat until my capital is gone. I see two options: 1) after, say, 3 bear traps put everything in dollars or gold and wait it out, or 2) get into shorting, which I've never done because you don't get dividends and you're running against the overall trend of the markets, which is to appreciate. Opinions?
Many things wrong here. First, if you are long trend only, what is your defn of a trend? If defn is not met, then stay out. Second, using a percent loss has not basis in the real world. Why not use something based on price action. Third, if you are stopped out, what tells you a bull trend has resumed?
Swimming against the current is never wise. If you insist on being a long only trend follower, I suggest you look at "going long" on some inverse ETF's in a bear market.
Its when the stock market drops at least 20% from all time highs, happens about once every 10 years on average in the US indices. The last one started 10 years ago, so expect another one soon.