SURVIVING DIFFICULT MARKETS - A LETTER TO READERS AND TRADERS

In the market outlook notes and in the general themes in our weekly newsletter we have highlighted the increasing market instability over the past several months. We expected a significant market fall, but not with the speed or severity we have experienced.
In past months our focus has been on short term trades because our strategic outlook suggested that time was a significant risk factor. The longer you were exposed in a trade, the greater the risk of a market collapse. A number of readers questioned our caution. We hope they have not been mauled by this weeks bear.

We will watch closely for evidence of bottom-out activity. In the coming weeks we will explain the methods we use to trade the short side. CFDs provide the only viable alternative. We will consider warrants as a trading method for short term rallies within the context of a downtrend. However, we feel these instruments are past their prime. CFD’s provide a better solution. In the past months we have focussed on index trading because this was more efficient than stock picking. In a recovery market, success comes from stock picking. This combines chart pattern analysis and rally analysis, but executes the trade with a CFD. We will explain these methods in coming weeks.
As the rebound develops we will examine breakout trading tactics and methods. This will include enhancements to old methods because one thing is for sure- the future will be different from the trend behaviour of the past 3 to 4 years. This is not a Hollywood movie where the speeding car rolls 4 times and the driver gets out without injury. Traders face changed market conditions ahead after this crash so trading methods must be adjusted.

In the past year we have lost potential readers because readers felt success in the market was easy. The bull market encouraged sloppy trading. It took real skill to lose money. Our focus on risk management seemed quaint and antiquated because the bull market paid for any trading mistakes you made. Our refusal to become heavily involved in trend trading after the August rebound was dismissed as unnecessary caution. The articles we included in the newsletter were designed to explain short term trading methods and risk management. We used this period to educate readers on CFDs as a trading instrument and to explore the new management techniques that were required with these. This was in preparation for the market conditions that have developed in the last 2 weeks, and for the new conditions in which we will have to trade and survive in the next year.

In the coming weeks readers can expect to be soothed by fund managers and commentators with the placebo that the ‘market is for the long term” and there “are quality bargains available.” This from the very people who were totally unprepared for the market collapse and who told clients that the August retreat was a long term buying opportunity rather than a warning signal. This is the same group who failed to understand the impact of sub-prime on the market.

In the coming weeks readers can expect a newsletter focus of the trading methods designed to take advantage of weak rallies. We will look at ways to identify downtrend breakouts and the start of genuine up trends. As we have in the past 12 years and two market crashes, we will bring you new ideas and demonstrate methods that lay the foundations of recovery success. We use reliable data from JustData and straight-forward GTE charting that makes it easy to apply our preferred analysis and trading methods. Its time to learn how to trade again. For some, it is time to really learn how to trade and manage risk.

I wish you all success in the developing market.

Daryl Guppy

CEO Guppytraders.com

Darwin, Beijing, Singapore