OPPORTUNITY OF A LIFETIME JUST AHEAD PROVIDED YOU PREPARE NOW.

(BEWARE THE IDES OF MARCH.)

Now is a time to develop a steely attitude in order to consider an alternative investment strategy, before the next opportunity unfolds. This is never more important than after long periods of progress or weakness. Market strength has now been around for almost 5 years. The time is nigh to plan, prepare and commence a profound self re-adjustment programme to adjust from a bull market mentality into alternative strategies. It is now important for future success that trading is maintained but with a strongly defensive bias. Withdrawal from the markets in difficult trading conditions ensures that future emerging opportunities will be missed. By all means cut down trading if you wish but do not cease trading. This is the path the losers take hoping that they will see the next opportunity by staring from afar. The result is rarely successful only ensuring late entry into the next major move.

It can now be argued that the markets are far too high after almost 5 years of progress. Ok they could go higher but the risk reward ratio would still be dangerously high.

This year the markets have been in a drawn out trading range as was the case before the last crash in 2000. Such conditions encourage conflicting feelings of satisfaction and despair as markets pull in both directions. For example the FTSE 250 is now at 11299 compared with 11319 on the 2nd January of this year. During the year it has gone nowhere but on the 21st May at 12282 everything was hunk-dory but by the 17th August everything was in despair at 10391…then they recovered to just avoid a serious break of the markets. The most important feature during such trading ranges is not that you make profits but above all you cut down risk with close exit levels

The essential requirement in trading ranges is to exit as markets they fall as one day usually when least expected support is reached and then shattered followed by swift debilitating falls. Buyers are nowhere to be found and without buyers you cannot sell those plummeting shares. The only answer is cash as markets fall in trading ranges before reaching the lows of the range. Of course, in rising markets corrections precede the time to buy. Distinguishing between the two types of falls is often the demise of the investor.

The good news is that a study of breakdowns after trading ranges discloses high odds for fat profits. For instance the fall of 2001/2003 saw Gann traders make huge profits whilst all around them were running around like headless chickens. If you go back to the 1970s the Dow slumbered under 1000 for many many years but then exploded to the upside. The fainthearted who despaired and withdrew missed the opportunity of a lifetime. Those with courage emanating from knowledge, discipline and patience were well rewarded with huge returns.

So how can future problems be converted into attractive opportunities?