@vince.quant: When should you sell a stock that's still going up? Most people lean on price targets, sell at +20%, trail a stop, bail when a chart pattern breaks. In 2010 Dai, Zhang and Zhu took the question apart with actual math instead. They modeled the market as flipping between a hidden bull regime and a hidden bear regime. You never get to see which one you're in, so the variable that matters becomes the probability that the bull is still alive given everything the price has done so far. What they proved is that the optimal rule never looks at the price level at all. You hold while that probability sits above a critical threshold, and you sell once it drops below. The right moment to exit is when the trend stops giving you enough evidence that the bull is still running, which can happen while the price is still near its high. Worth being honest about the limits. The proof lives inside a specific model, two regimes, fixed parameters, estimated probabilities, a transaction cost, assumptions about how prices move. Real markets break those assumptions, and pinning down the true regime live is genuinely hard. It still hits hard because it swaps an arbitrary round number for something deeper, a measure of trend strength you can actually derive. There's no magic price to wait for, you sell once the trend stops proving itself. Source: Dai, Zhang & Zhu (2010), Trend Following Trading under a Regime Switching Model, SIAM J. Financial Math 1(1), 780-810. https://doi.org/10.1137/090770552 #finance #quantfinance #trading #investing #stocks

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Thursday 18 June 2026 19:09:01 GMT